ATO issues

The ATO has reminded superannuation members that severe financial hardship does not meet the grounds for compassionate release. This reminder comes as the ATO continues to receive calls from people experiencing severe financial hardship or wanting to access their superannuation to assist with general expense.

Background – severe financial hardship

Access to superannuation for severe financial hardship can only be requested by members to their superannuation funds. It is not administered by the ATO. To release benefits under severe financial hardship, funds need to be satisfied that the member:

• Can’t meet reasonable and immediate family living expenses, and
• Has been receiving relevant government income support payments for a continuous period of 26 weeks and was receiving that support at the time they applied to the trustees.

The payment must be a single gross lump sum of no more than $10,000 and no less than $1,000 (or a lesser amount if the member’s benefits are less than $1,000). Only one payment is permitted in any 12-month period.

Alternatively, if the member has reached their preservation age plus 39 weeks, funds need to be satisfied that the member:

• Has been receiving relevant government income support payments for a cumulative period of 39 weeks since reaching their preservation age, and
• Was not gainfully employed on a full-time or part-time basis at the time of applying to the trustees.

If a fund releases benefits under these circumstances, there are no cashing restrictions.

Therefore, this condition of release is not designed for members who have experienced a sudden financial shock (e.g., lost their job).

Remember, any sums withdrawn due to severe financial hardship are not subject to special tax rates and will be taxed as a superannuation lump sum. For people under age 60, the amount of tax will generally be between 17% and 22%, however no tax applies for individuals over age 60.

What about compassionate grounds?

As a refresher, compassionate grounds exist where a member can demonstrate to the satisfaction of their trustee that they lack the financial capacity to:

• Pay for medical treatment (defined as life-threatening illnesses or to alleviate chronic pain or mental disturbance) or medical transport for the member or a dependent
• Enable payments to prevent foreclosure by a mortgagee or the exercise of an express statutory power of sale over the family home
• Pay for home and vehicle modifications to accommodate the special needs of a severely disabled person or dependent
• Pay for expenses associated with the member’s palliative care, in the case of an impending death, or
• Pay for expenses associated with a dependent’s palliative care, death, funeral or burial.

Generally, there is not a widespread awareness of these trigger points under this condition of release. If satisfied, they can provide welcome relief for members seeking to discharge these very important expenses at what can be a stressful time in their life.

Seek our advice if you are uncertain around these or other conditions of release for your SMSF.