In the wake of the jailing of an operator of an illegal early release of superannuation scheme, the Australian Taxation Office has issued a warning to self-managed fund trustees to make sure they only release money from their fund when the law allows it.
The ATO says SMSF trustees are legally required to protect members’ super savings, and that includes complying with the various conditions of release.
Earlier this month, Kent Nguyen was sentenced to three years’ jail after the District Court of New South Wales ruled that he had used a fraudulent SMSF, Tot Form Super Fund, to orchestrate illegal early release of funds.
In each of the 25 cases before the court, the individual’s super balance was transferred from a retail super fund to Tot Form, and then the funds were withdrawn.
In total, more than $700,000 was withdrawn. Nguyen kept “a significant portion” of the withdrawn funds, telling his clients the money had been paid to the ATO as tax.
Many of the people who used the scheme were in financial trouble and were referred to Nguyen as someone who could help them get their hands on some cash.
In its latest communication with SMSFs, the ATO says trustees need to be familiar with the circumstances that allow for the release of funds.
Preservation age. Access to super benefits is generally restricted to members who have reached preservation age, which ranges from 55 to 60, depending on their date of birth. Anyone born after 30 June 1964 has a preservation age of 60.
An SMSF can pay a transition to retirement income stream to a member who has reached preservation age and is still working, provided the trust deed allows this type of income to be paid.
A member who has reached age 65 may cash their benefits at any time, even if they haven’t retired. There are no restrictions, which means the benefit can be paid as an income stream or a lump sum.
Compassionate grounds. Special circumstances for early release include paying for medical treatment for the member or their dependant, making a payment on a loan to prevent them from losing their home, and modifying their home or vehicle for the special needs of their member or a dependant because of severe disability.
Early release is also allowed to pay for costs associated with the death, funeral or burial of a dependant.
Severe financial hardship. A fund member may be able to access their super if they’re under severe financial hardship. Trustees need to be satisfied that the member cannot meet reasonable and immediate family living expenses, and they have received government income support payments continuously for 28 weeks and were receiving this support at the time of application.
Financial hardship payments are capped at $10,000 in any 12-month period.
First home super saver scheme. The FHSS allows fund members to save for their first home inside their super account. They do this by making voluntary contributions.
When they are ready to use the savings to buy a home, they can request a release.