ATO Early Release Of Super

In light of the financial hardship being experienced by many Australians during the Coronavirus pandemic, the Government has extended early access of superannuation until December 2020.

However, the ATO has expressed concern regarding individuals who may undertake superannuation strategies that circumvent the purpose of COVID-19 relief measures.

COVID-19 early release of super – measure extended

Temporary changes to the law also allow superannuation fund members financially affected by COVID-19 (including SMSF members) to access their superannuation prior to meeting a condition of release.

Citizens and permanent residents of Australia and New Zealand who meet the eligibility conditions for early access can obtain a single lump sum of $10,000.

Previously, applications were required to be submitted by 24 September 2020. However, the Government has now extended this deadline so that eligible individuals have until 31 December 2020 to submit their application.

TIP– The eligibility conditions require the individual to demonstrate financial hardship from COVID-19 (e.g., they are unemployed, were made redundant).

ATO warns individuals about early release strategies

The ATO has issued a fact sheet outlining its concerns regarding schemes that individuals may enter into in order to access the COVID-19 early release of super.

One area of concern relates to the withdrawal and re- contribution of super for taxation benefits. Accordingly, the ATO has flagged that the following tax avoidance schemes may be subject to penalties:

  • Withdrawing and re-contributing super to claim a tax deduction; or
  • Contributing an amount to claim a tax deduction and later withdrawing that amount.

If individuals still proceed to re-contribute super withdrawn under the early access provisions as a deductible contribution, the ATO advises of the following tax consequences (plus penalties that may apply):

  • Excess contributions tax will apply if the concessional contributions cap is exceeded;
  • A 15% tax applies to any re-contributed amounts; and
  • High income earners with income and super contributions over $250,000 are subject to an additional 15% ‘Division 293 tax’.

EXAMPLE– Jess, an airline pilot, is stood down by her employer and applies for a COVID-19 early release of super. However, Jess’ financial situation is such that she does not need any additional financial support throughout COVID-19.

In May 2020, Jess applies to access a one-off $10,000 payment from her superannuation account. Jess wants to re-contribute the $10,000 amount back into her superannuation fund and claim a personal tax deduction for the contribution.

After re-contributing, Jess notifies her fund that she intends to claim a personal super contribution tax deduction. She submits her tax return claiming a $10,000 deduction, which reduces her taxable income.

The ATO advises that this is a tax scheme entered into by Jess in order to access a tax benefit. Therefore, Jess would be penalised for this transaction.

Disclaimer: This information should not be considered personal financial advice as it is intended to provide general advice only. This factsheet has been prepared by Superhelp Australia Pty Ltd without taking into account your personal objectives, financial situations or needs.

The information contained in the fact sheet may not be appropriate to your individual needs, therefore, you should seek personal financial advice before making any financial or investment decisions.

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