Catastrophic bush fires continue to cause unimaginable loss and damage. In their aftermath, the loss of regular income from employment and businesses will cause ongoing financial stress to many who may well be asking if they can access their superannuation. Others may wonder if they may access their superannuation to assist those in need.
SMSF members, as trustees, are more vulnerable to breaching early access provisions as they directly control access to their member accounts. They need to be aware that SMSFs are prohibited from making donations as this is a clear breach of the sole purpose test. Alternatively, any member may draw on unrestricted non-preserved monies then, once they hold the withdrawal personally, do with it as they wish.
Problems of illegal early access arise where members have not yet triggered a condition of release.
Apart from actual retirement after preservation age, a useful trigger of release between the ages of 60 and 65 is the cessation of a situation of employment as retirement is not required. It may be triggered if a member loses their job or ceases it voluntarily. It may even be invoked if the member is working at both a full time and part time job and ceases either of them. For members under the age of 60 the position is much more difficult, but funds may still be accessed on compassionate grounds or due to severe financial hardship.
For an SMSF member, the ATO – not the trustee – decides on whether a trigger of release due to compassionate grounds is allowable. Qualification is difficult.
Compassionate grounds generally involve medical expenses and related issues but also include making a payment on a loan, or council rates, to prevent the loss of the member’s principal place of residence (but only if the member is legally responsible for making the mortgage payments). Actual foreclosure must be imminent. The maximum amount that can be released, in a 12-month period, is limited to;
- three months repayments, and
- 12 months interest on the outstanding balance of the loan.
For example, if the monthly repayments are $1,200, and 12 months interest is $9,600, the maximum is 3 × $1,200 + $9,600 = $13,200 but the total amount that can be released will only be the amount necessary to stop the foreclosure.
The entity foreclosing or taking action to possess the home needs to have an express power of sale to be considered. If foreclosure is threatened as a result of bankruptcy, family court proceedings or other loan agreements, it is unlikely that the member will be successful.
An SMSF trustee may grant early access due to severe financial hardship but the prescribed conditions must be strictly adhered to and the necessary evidence retained for the auditor. There are two eligible circumstances.
- The member will need to have been in receipt of government income support payments continuously for 26 weeks and be unable to meet reasonable and immediate family living expenses. The minimum amount that can be paid is $1,000. The maximum is $10,000. Only one withdrawal is allowed in any 12-month period.
- The member has reached preservation age (generally age 60) plus 39 weeks, received government income support payments for a cumulative period of 39 weeks and is not gainfully employed on a full-time or part-time basis at the time of application. Any amount can be drawn.
In summary, access to superannuation monies from member accounts where the member is not either retired after preservation age, over 65, terminally ill, disabled or deceased is difficult by design so, notwithstanding the financial need of many bush fire victims, they will generally be unsuccessful in accessing their superannuation. This is just another reason why, those of us with the ability to do so, should generously support the various organisations who are providing such urgent and much needed assistance to the increasing number of bush fire victims.
All the Best for the New Year in the expectation that it will get better.
