Early Access to Superannuation

Early access to super rules should be “tighter and applied correctly”

The SMSF Association has called for the rules around accessing superannuation early to pay for medical treatment to be “tighter and applied correctly”, in part so it can’t be used for elective surgery, while suggesting that some medical professionals may be over-promoting the option. The Association notes the “significant” increase… Read More »Early access to super rules should be “tighter and applied correctly”

Accessing super early and legally

accessing super early, early release of superannuation

Accessing super early is allowed in some circumstances, with a number of conditions. However illegal super early access schemes can result in stiff fines or more severe penalties.

Generally in order to access superannuation generally a condition of release must be met. The conditions relevant for accessing super early include:

  • Compassionate grounds
  • Severe financial hardship
  • Terminal medical conditions
  • Temporary incapacity
  • Permanent incapacity
  • Former temporary resident
  • Balances of $200 or less

All the conditions of release can be found in Schedule 1 of the Superannuation Industry (Supervision) Regulations 1994 (SISR).

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More people applying to DHS for early release of super

The Department of Human Services (DHS) has reported a continuing increase in applications for early release of superannuation.

The DHS received 19,286 applications for early release of super in 2013/14, up 7% from the previous year and 18.1% over 2009/10. These figures are contained in the DHS annual report for 2013/14.

However approved applications for early release of super are not growing at the same rate, with 11,728 approved in 2013/14, up 1.89% from the previous year.

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Top marginal tax rate on early access to superannuation?

Top marginal tax rate on illegal early access to superannuation benefitsCurrently people who illegally access their superannuation balance early pay tax on the amount at their marginal tax rates, plus the medicare levy.

However it was a recommendation of the Cooper Review  that this be tightened to further discourage illegal early access of super, with such amounts to be taxed at the top marginal tax rate:

“Recommendation 8.25

The Government should amend existing tax laws so that:

  1. (a)  amounts illegally early released be taxed at the superannuation non‐complying tax rate; and
  2. (b)  an additional penalty, based on a sliding scale of penalties that takes into account the individual circumstances, should apply.”

The Cooper Review panel came to this conclusion because the amount of tax payable on illegally early-accessed superannuation funds depends on the income of the individual, not the act of breaching the preservation rules and cashing restrictions. Such a person would still have the benefit of the remaining funds accessed early, though there are other penalties available, and so the panel thought that:

“Tax rates and penalties need to be amended to ensure there is both a greater deterrence factor and to ensure that those committing illegal early release do not enjoy the same treatment as those who legally get early release of their superannuation”.

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Early access to super: ‘fee’ included in assessable income

AAT - Early Access to SuperannuationThe Administrative Appeals Tribunal (AAT) has released another decision which shows that it does not pay to participate in superannuation early access schemes.

The decision of Vuong and Commissioner of Taxation [2014] AATA 402 (23 June 2014) following the ATO disallowed two objections by the taxpayer in relation to an early access scheme they participated in, including a significant ‘fee’ paid to the promoter.

Summary of the facts:

  • The taxpayer was aged 49 in 2008
  • He was a member of a large APRA fund
  • In 2008 he was referred by colleagues to a person who offered to help him access his super
  • The fee for this ‘service’ would be 29% of the balance
  • It appears that the taxpayer did not properly understand that this was not allowed
  • Rollover forms were submitted to the APRA fund, and as a result $114,697.23 was deposited into a bank account not controlled by the taxpayer
  • The 29% fee was taken, and the remaining $81,434 transferred to the taxpayer
  • Questions were raised by the taxpayer’s tax agent, and the tax return for the relevant year was lodged, with the intention of amending it when the facts were known
  • In 2011 the ATO audited the taxpayer, and included the full $114,697.23 in his assessable income, resulting in a tax shortfall of $45,298.64.
  • The ATO also imposed  a shortfall interest charge of $2,896.46.
  • The ATO later imposed an  administrative penalty of $11,324.65 – 25% of the shortfall
  • The taxpayer lodged two objections – one over the imposition of the administrative penalty and the other over the wish to claim the 29% ‘fee’ as a tax deduction
  • Both these objections were disallowed by the ATO, and then appealed to the AAT

Early Access Super included in Assessable Income?

Section 6.1 of the ITAA 1997 includes in Assessable Income amounts that are not Ordinary Income, called Statutory Income. Section 304.10, also of the ITAA 97, includes in Assessable Income the amount of a Superannuation Benefit if, among other things, the taxpayer receives a benefit from a complying superannuation fund where the benefit was received “otherwise than in accordance with payment standards prescribed under subsection 31(1) of the Superannuation Industry (Supervision) Act 1993″ unless the Commissioner “satisfied that it is unreasonable that it be included”. Section 307.15(2) of the ITAA 97 also provides that:

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