As financial hardship due to the global economic crisis increases, people are more at risk of accessing their super illegally. The ATO is concerned that some people, whether encourage by promoters or because of financial difficulties, will use self-managed super fund (SMSFs) to access their super without meeting a condition of release.
SMSFs can only release preserved benefits early:
- If the account holder is experiencing severe financial hardship
- On tightly restricted compassionate grounds
- In the case of permanent incapacity.
A fund legally releasing the benefit generally does not charge a commission or fee or charges a nominal amount.
In illegal schemes, generally:
- The early release conditions are not met
- Benefits are transferred from a large super fund into an SMSF and the benefits are withdrawn
- There are many participants
- The promoter takes as much as a 30% cut before transferring the remaining amount to the participant.
The ATO considers that a SMSF is not operating correctly where:
- Super benefits are paid into a supposed SMSF set up and run by a promoter
- The money was not in any way to provide increased super benefits in the future
- The promoter has kept some of the benefits rolled over as fees/commissions
- The remaining amount of benefit is paid directly to the participant
Benefits are assessable income and are taxed at marginal rates. Penalties and additional tax may apply for not declaring this income. Many individuals who have accessed their super illegally have received amended and default assessment notices in the past three months. These assessments included penalties.
Some people have had to pay out the entire amount they accessed from their super in tax, penalties and the ‘commissions’ they paid to the promoter. Sometimes, they are even left with a debt. Also, the ATO bans these individuals from being involved in an SMSF in the future.
If the ATO becomes aware of illegal activity like this, they can:
- Freeze an SMSF’s bank accounts so they can investigate further
- Suppress the SMSF’s details from Super Lookup to stop further rollovers.
Also, they work very closely with the Australian Securities & Investment commission on investigating early release of super and there are currently prosecutions before the courts.
If you are suffering financial hardship and/or are thinking about withdrawing money from your superfund please contact our office for a discussion about the requirements prior to doing so.