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As part of its response to the COVID-19 pandemic, the Federal Government is allowing those individuals who are adversely effected to have early access to a maximum of $10,000 of their super balances in the 2020-21 financial year (having already allowed a maximum of $10,000 in early withdrawals to those individuals in the previous financial year).
When considering an early withdrawal, eligible individuals must turn their mind to a variety of factors. Furthermore, penalties for unlawful early withdrawals are substantial.Ari Armstrong, Maddocks Lawyers
Ordinarily, the soonest an individual can begin to access their super balance is when they reach their preservation age and retire. However, given many individuals are now experiencing job losses and/or a loss of income due to the COVID-19 pandemic, there is a need for those individuals to have that money now in order to meet immediate living expenses.
Early access is available to super fund members who are in the accumulation phase (not the pension phase).
You should ensure your SMSF Trust Deed does not restrict the ability to gain early release of super under the COVID-19 early access scheme. Cleardocs has a general allowance for withdrawals permitted by law, but also updated its master documents recently for the SMSF and pension products to specifically take this allowance into account. These products can be accessed on the Cleardocs website.
In order for an individual to be eligible, the person must first be an Australian citizen or permanent resident of Australia and New Zealand.
There main categories of eligibility set out in regulation 6.19B of the Superannuation Industry (Supervision) Regulations 1994 are:
It is important to note that early access is unavailable to partners in a partnership unless the partner is unemployed or entitled to receive the benefits listed at point 2 above.
In the event that the eligible person has multiple super funds, they may withdraw from multiple funds, provided the gross amount withdrawn from all the funds does not exceed $10,000.
When applying for early access, the person does not apply to their super fund, but to the ATO via the MyGov website. They do not need to attach evidence to support the application, but they must make a declaration that they are eligible. However, the person should keep records and documents which substantiate eligibility, in case the ATO chooses to audit the person's eligibility.
In the case of SMSFs, once the ATO has issued the member with a determination advising them that they are eligible to make an early withdrawal, the member should forward this determination to the SMSF trustee who is then authorised to release the amount stated in the determination.
Individuals can apply for the early release of super for COVID-19 purposes even if they have previously accessed their super early in other circumstances (such as financial hardship).
The main benefit with the early access scheme is that the lump sum withdrawal will not be taxed and the member has no restrictions on how they choose to spend the money. They may even choose to recontribute some of the amount back into the super fund if they don't end up using the full amount.
Beyond that, aside from the obvious benefit of being able to meet immediate living expenses and ease current financial stress, there is little benefit to accessing super early.
Although super balances fluctuate, the compounding nature of super as well the low tax environment in which super balances exist, means that in all likelihood, the $10,000 withdrawn now will be worth more if the money is left in super. Independent financial advice should be sought when considering a decision like this.
Another consideration is that income protection and life insurance which are held within the super fund may not be available on accounts with a very low balance.
Given the ease of lodging an application, some unscrupulous members may be tempted to access their super without meeting the eligibility criteria. However, significant penalties apply to those who illegally access super early.
Section 68B of the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act) states that a person must not promote a scheme which will result in a payment from a fund being made otherwise than in accordance with the approved payment standards. A breach of this section results in civil and criminal penalties, including significant fines of up to $504,000 and terms of imprisonment of up to five years. Corporate trustees may be fined up to $2.52 million.
An SMSF trustee who partakes in such scheme, will also incur higher taxes and additional penalties that may disqualify them from being able to operate as a trustee of an SMSF.
In the event that an individual applies for early release without meeting the eligibility criteria, individuals should contact the ATO immediately. A voluntary disclosure of the breach, as well as an explanation of the circumstances surrounding the improper early release, will be taken into account by the ATO when determining whether to issue a penalty and the amount of the penalty.
For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of the Commercial team.
You can read earlier ClearLaw articles on a range of topics, such as:
Paul is a Special Counsel in the Maddocks Commercial team with particular expertise in commercial agreements for the supply of goods and/or services, the Personal Property Securities Act 2009, the National Consumer Credit Protection Act 2009 and the National Credit Code and the Australian Consumer Law.
Paul's key areas of practice include:
Before joining Maddocks, Paul was employed for 13 years with the Victorian Department of Justice, principally as a Deputy Registrar in the Victorian Magistrate's Court, but also as a legislation, policy and project officer for the Department.
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