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Understanding super & money
By Stuart Sheary, Senior Technical Manager
Clients facing financial hardship often require assistance with strategies to make ends meet. Considerations might include accessing social security such as JobSeeker, delaying loan repayments or liquidating investments etc. Some clients might even seek early access to their super. These clients may need help identifying the super conditions of release that are available and which of these are most suitable.
The COVID-19 early release of super has received a lot of attention and $33.3 billion has already been withdrawn under this condition of release. The withdrawal is tax free, the application process is simple, eligibility is usually straightforward and on average the payment takes just 3.3 business days. Eligible clients could have withdrawn $10,000 in the 2019/2020 financial year and a second payment of up to $10,000 in the 2020/2021 financial year up until 31 December 2020.
Amounts drawn under the COVID-19 condition of release are non-assessable and non-exempt, meaning they are not taxed. This compares favourably with other conditions of release. Lump sum super withdrawals made by people below preservation age are typically taxed at a maximum of 22% (including Medicare levy).
The application is through the ATO via myGov. There is no paper form and clients who do not have a myGov account are advised to call Services Australia on 13 23 07 to organise one.
Through the myGov application the client will need to make a declaration that they are eligible under this condition of release. In the application myGov provides a link to the ATO that clarifies eligibility. Eligibility is also defined in s 6.19B which notes that the funds must be required to assist with the financial impact of COVID-19 and the individual satisfies one of a list of conditions. Examples of these conditions include:
For a full list, please see the ATO.
The ATO’s call centre is frequently asked whether an individual can apply for a second early release of super in the 2020/2021 financial year if working hours, which had dropped by 20% or more since 1 January 2020, have gone back to normal. In the ATO’s ‘Top call centre questions’ page a second withdrawal (in the new financial year) is permissible. The explanatory memorandum of Coronavirus Economic Response Package Omnibus Bill 2020 might have previously been interpreted as requiring the applicant to be experiencing a drop in hours at the time of application. Whilst the ATO appears satisfied a second withdrawal is permissible, it is still necessary for the funds to be required to assist with dealing with the adverse financial impact of COVID-19.
Eligible clients can also access their super under ordinary compassionate grounds see SISR 6.19A.
Under this condition of release a lump sum may be drawn from super to pay an eligible expense that the client would not otherwise be able to afford.
Specific expenses are:
As COVID-19 suspended loan arrangements on home mortgages come to an end this condition of release may assist in preventing the foreclosure or forced sale of homes. The amount withdrawn is limited to 3 months’ worth of repayments and 12 months’ interest.
In relation to medical treatment, the ATO will require 2 medical practitioners (of which one must be a specialist) to certify that the medical treatment is not readily available in the public system and is necessary to treat a life threatening illness or injury, alleviate acute or chronic pain or alleviate an acute or chronic mental disturbance.
Like the COVID-19 early release of super this condition of release is administered via the ATO and most clients will have to apply via myGov. Unlike the COVID-19 early release of super a lump sum withdrawn under this condition may be taxable depending on the age and tax components withdrawn.
There is no maximum amount that can be released under compassionate grounds outside mortgage relief. The ATO determine the amount that is reasonably required without any explicit restriction.
For more information on eligibility see the ATO’s early release on compassionate grounds page.
Clients may also access their super under severe financial hardship. Applications are administered through the super fund and not the ATO.
Clients below preservation age and 39 weeks can make one withdrawal over a 12-month period of up to $10,000 if the client:
Financial hardship is applied on a per fund basis rather than on a per individual basis. This means clients can make one application each year of up to $10,000 from each of their funds. Note a minimum withdrawal of $1,000 applies. In Treasury’s Review of Early Release of Superannuation Benefit it has been suggested withdrawals be limited on a ‘per individual’ rather than a ‘per fund’ basis.
Clients who are at least preservation age and 39 weeks have no cashing restrictions if they:
These clients can access all their super benefits. Under super law they are effectively treated as retired, even though they may have an intention of working 10 or more hours per week.
In summary in comparing available options the following table may assist.
If you have any questions, or would like more information, please contact the IOOF TechConnect team on 1300 650 414.
DisclaimerThe information in this section of the website is intended for financial advisers only and is not to be distributed to clients. It has been prepared on behalf of Australian Executor Trustees Limited ABN 84 007 869 794 AFSL 240023, IOOF Investment Management Limited ABN 53 006 695 021 AFSL 230524, IOOF Investment Services Ltd ABN 80 007 350 405, AFSL 230703 and IOOF Ltd ABN 21 087 649 625 AFSL 230522 based on information that is believed to be accurate and reliable at the time of publication.