Selling an investment property to put into your super
As you approach retirement, your investment property may stand as a cornerstone of your financial portfolio, a reliable asset that’s served you well over the years.
However, with retirement on the horizon, you're likely exploring every avenue to bolster your superannuation savings and ensure a more secure financial future. The good news is that there's a strategy gaining momentum among savvy investors – selling your investment property and directing the proceeds into your super fund.
This move is becoming increasingly popular among those looking to fortify their financial future even after retiring. In this article, we'll take a closer look at how this option can work for you and help you navigate the path to a more relaxed retirement.
Can I sell my investment property and put it into my super?
In Australia you can sell your investment property and contribute the proceeds into your superannuation under certain conditions. This is known as a ‘downsizer contribution’. With this, you are able to contribute up to $300,000 (per person) from the proceeds of your sale.
In order to actually do this, there are a few criteria you must meet first. They are listed below:
- You must be aged 55 or older
- Your home is in Australia
- Your home is not a mobile home (caravan, boat, etc.)
- You or your spouse have owned the home for 10 or more years
- You make a downsizer contribution into your super within 90 days of receiving the funds from the sale
Find out more about downsizer contributions here.
What’s the advantage of downsizer contributions?
The biggest benefit of downsizer contributions is the additional amount you can add to your regular super contributions.
While they do count as a non-concessional contribution type (explained further below), they do not contribute to the cap, allowing you to maximise the amount you can add to your super.
Be sure to speak to a professional tax advisor and agent to help you find the best course of action for you.
How much can I put into my super?
Your super is generally made up of regular (concessional) and non-concessional contributions.
Concessional contributions refer to pre-tax payments including employer contributions, salary sacrifice contributions and so forth.
You can put up to $27,500 worth of concessional contributions into your super annually.
Non-concessional contributions refer to post-tax payments made from your personal contributions from your take-home pay.
You can put up to $110,000 worth of non-concessional contributions into your super annually.
Superannuation capital gains tax
After contributing to your super for many years, you’ll most likely eventually end up with a capital gain. However, whether you pay capital gains tax (CGT) on this gain, is dependent on when exactly you withdraw your money.
If you withdraw money from your super before your ‘preservation age’ (between 55-60), you could be subject to paying CGT.
For a tax-free withdrawal, make sure to access your funds once you have reached your preservation age. Find your preservation age here.
Using your super to buy an investment property
Now, let's flip the scenario and explore the option of using your superannuation to purchase an investment property.
If you have a self managed super fund (SMSF) or have qualified for the First Home Super Saver (FHSS) scheme, this is a possibility. However, whether it is viable is highly dependent on your unique financial situation.
What to consider
- Put down a deposit (20% or more is preferable) - you can use your super to help fund this portion
- Have a minimum liquidity of 10% of the property’s value
- Be weary of additional costs such as stamp duty, conveyancing fees, etc.