The cash sitting in your superannuation fund (super) can be tempting, particularly if you are short of cash. But the reality is, there are very few ways you can take advantage of your super once you contribute it to the fund – even if you change your mind.
The sole purpose test underpins access to your super – that is, super is for the sole purpose of providing retirement benefits to fund members, or to their dependants if a member dies before retirement. It’s important to keep this in mind because people usually fall for ‘too good to be true’ schemes in accessing their super early.
Accessing your super
The ATO recently warned against a scheme spreading through suburban Australia where scammers encourage people to access their super early to pay debts, take a holiday, or provide money to family overseas in need. All the scammers charge a fee for their services and ask you to sign blank forms and provide identity documentation. Typically, the forms are used to roll-over your super from an industry fund, establish an SMSF, and open a bank account for the new SMSF. Once the super is rolled into the SMSF, the funds are accessible to withdraw. Problem is, accessing the super is illegal unless you meet the conditions. Any super that is withdrawn early is taxed at your marginal tax rate even if the money is returned to your fund later. To add, you are disqualified from being a trustee of your SMSF. If you knowingly allow super benefits to be accessed illegally from your fund, penalties of up to $1.1 million and a jail term of 5 years can apply.
Generally, you can only access your super once you turn 65, when you reach preservation age and retire, or reach preservation age and choose to keep working and start a transition to retirement pension. Currently, the preservation age is 55 years old for those born before 1 July 1960. It then increases by one year, every year, up to the maximum of 60 for those born after 30 June 1964. Legally accessing your super early com in very limited circumstances.
Treasury is in the midst of a review into the early release of super. This is due to the rapid increase in requests for early access to fund medical treatments (such as gastric banding surgery).
“A significant proportion of recent applications appear to relate to out-of-pocket expenses associated with bariatric surgery (that is, weight loss surgery), with a smaller proportion attributable to assisted reproductive treatment (ART), also referred to as in-vitro fertilisation (IVF) treatment.”
The review however, focuses on more than medical treatments, looking at the issue broadly including whether it is appropriate to provide early access to super to pay compensation to victims of crime.
Super benefits can be released on compassionate grounds to meet expenses related to medical issues, modifications necessary for family home or motor vehicles due to severe disability, and palliative care. This is to prevent foreclosure of a mortgage or exercise of a power of sale over the fund member’s home (principal place of residence). This can also be to pay for expenses with a dependant’s death, funeral or burial.
Early access to super needs to be a last resort. It’s up to the person applying for early access to prove to the regulator that they don’t have the financial capacity to meet these expenses without accessing their super.
In 2016-17, the Department of Human Services received 37,105 applications for early access to superannuation on compassionate grounds, with 21,258 approved. The average amount released was $13,644. The great majority (72%) of funds released were on medical grounds , then 18% for mortgage payments.
A person seeking early release for medical treatment must provide written evidence from at least two medical practitioners – one of whom must be a specialist – certifying that the treatment or medical transport:
- is necessary to treat a life threatening illness or injury; or alleviate acute or chronic pain; or alleviate an acute or chronic mental disturbance; and
- is not readily available to the individual or their dependant through the public health system.
At present, the Department of Human Services responds to applicants within 28 days.
The applicant then must approach their super fund trustee who has ultimate discretion regarding the release of the funds. From 1 July 2018 however, the Australian Taxation Office will take over administration of early release applications, streamlining the process so applicants and super funds receive the compassionate release notice electronically and simultaneously.
First Home Buyers
The First Home Super Saver Scheme (FHSS) enables first-home buyers to save for a deposit inside their super account.
Home savers can make voluntary concessional contributions (for example by salary sacrificing) or non-concessional contributions (voluntary after-tax contributions) of $15,000 a year within existing caps, up to a total of $30,000. Under this scheme, buyers can only withdraw voluntary contributions made from 1 July 2017. Mandated employer contributions not included.
Who receives your super when you die?
Your eligible beneficiaries will receive your super because it’s not your estate’s asset.
These are your spouse (de facto), children, or a financial dependant – by the fund trustee. Putting in place a binding death nomination however will direct your super to whoever you nominate provided that they are an eligible beneficiary. If you have nominations in place, it is essential that you keep these current.
They normally give death benefits as a lump sum. And in some circumstances, as income stream. Just be aware that with the $1.6 million transfer balance cap in place, this could tip them over the cap. This is of course if you pay your super as a death benefit pension to your nominated beneficiary.
Divorce and super
The Family Law Legislation Amendment Act 2001 allows super to be split during a divorce either by agreement or by court order.
Before making a super agreement, both parties must receive separate and independent legal advice. The agreement must be in writing and must be endorsed by a qualified legal practitioner. As for the splitting of the super fund, it will depend on the order of the family court.
The same rules apply to accessing super. The petitioner can only access it when he/she turns 65 or reaches perseveration age.
You and your spouse need to continue managing your SMSF if you have one. Relationship breakdown does not suspend your obligations as trustees.
What happens if you contributed too much?
A: You cannot simply withdraw the amount, even when you simply overcommitted to your super.
If you breached your contribution caps, you can apply to withdraw the amount above your cap from your fund. Your personal assessable income (taxed at your marginal tax rate), is where your excess amount will be placed. Charges also apply to excess concessional contributions. Withdrawal of the excess amounts should not occur until the ATO provides you with a release authority. The super fund then has to receive that release authority.
In general, the assets of an SMSF does not allow the personal use or enjoyment of the fund members. For example, if the SMSF owns a holiday home, you cannot use it. If the fund has vintage cars, you cannot drive them. If your fund owns art, you cannot hang the art in your home or your office.
The exception to this is business real property. Assuming the trust deed allows for it, business owners can use their SMSF to purchase a building. They then can lease that building back to their business. Business real property is land and buildings used wholly and exclusively in a business.