One aspect of the Australian Government’s stimulus package was allowing individuals adversely affected by the economic effects of the Corona Virus to access up to $10,000 of their superannuation monies in both the 2020 financial year and the 2021 financial year.
The ability to access this money under early release compassionate grounds is hoped to ease the financial burden that many within the community are experiencing. This measure will be extremely important to a number of people. We have set out below the details of who is eligible, the timing of when you may be able to access the money and also how you can use this for tax planning for both the 2020 and 2021 financial years.
Individuals adversely affected by the economic consequences of the Corona Virus may be allowed to have up to $10,000 released from their superannuation or retirement savings accounts on compassionate grounds. Each person is permitted to have up to $10,000 released for the 2020 financial year and again for the 2021 financial year. Importantly, each person can only make a single application in each year and the application(s) must be made within 6 months of the 23 March.
Money accessed from your superannuation accounts will be received as non-assessable non-exempt income. This means that the money will be received tax free.
If considering accessing the $10,000 from your account within a SMSF then you must also ensure that the Trust Deed will allow for the early release. You should have this checked by your financial adviser or accountant.
Applying to Access up to $10,000
You can apply for a determination to have up to $10,000 released from your superannuation on the basis that the amount is required to assist you in dealing with the adverse economic effects of the Corona Virus pandemic.
Who is Eligible to Apply?
To be eligible to apply for early access of up to $10,000 in the 2020 and 2021 financial years you must satisfy one of the following requirements:
- At the time you apply for the early release you are:
- eligible to receive the Job Seeker payment, youth allowance for Job Seekers, Parenting Payment or special benefits under the Social Security Act; or
- eligible to receive the farm household allowance under the Farm Household Support Act 2014; or
- On or after 1 January 2020 you:
- were made redundant;
- your working hours were reduced by 20% or more; or
- if you are a sole trader, your business was suspended or there was a reduction in your turnover of 20% or more.
Based on the Explanatory Memorandum, it is expected that eligibility will be self assessed. Reduction in working hours or turnover will be determined by reference to changes that have occurred since 1 January 2020. This requires a comparison of a person’s working hours or turnover at the time they make the application and their usual hours prior to 1 January 2020.
Timing of Application
The application for a determination must be made to the Australian Taxation Office (ATO) and must be made within 6 months of 23 March 2020.
Any application to have up to $10,000 released for the year ended 30 June 2020 must be made not later than 30 June 2020. It does not matter that the ATO may not make a determination/decision on the early release request before the end of the 2020 financial year. If the ATO approves the application then that application and subsequent payment is considered to be a payment in respect of the 2020 financial year (and not the year in year it was paid if paid after 30 June 2020).
Further, you can apply for a second release in the 2021 financial year. This application for early release in 2021 must be made before the expiration of the 6 month period which means that the 2021 application needs to be lodged before 23 September (unless extended). Again, it will not matter that the ATO has not made a decision by that date because the actual release of the money can occur after the expiration of the 6 months but the application must be lodged before the expiration of the 6 months.
Single Application per Person per Year
A person can only make one application for early release for each of the 2020 and 2021 financial years. This means that if you apply for a release of $5,000, you cannot apply for another early release in the same financial year even though you did not access the maximum amount permitted (being the $10,000).
If your superannuation is spread over a number of superannuation funds then you can apply for early release from more than one fund. However, the you must stipulate the amounts that you wish to access from each fund in the one application (and not lodge multiple applications).
Once the ATO has made a determination/decision, the ATO will notify you of their decision and, if successful, the ATO will also notify your superannuation fund that you are eligible to access the amount up to $10,000. The determination from the ATO will specify the amount that may be released from each fund nominated.
When the Fund has received the ATO determination they will then be in a position to release the money to you.
Income Tax Implications
As mentioned earlier, the amount released to you will not be taxable. The government has legislated that the amount will be non-assessable non-exempt income. This means that it will not be included in your taxable income and will not impact on carried forward tax losses nor will it impact on your adjusted taxable income that is used to assess various tax offsets and rebates.
With the combination of the early release of up to $10,000 from your superannuation and potential income top ups from the government through increased Job Seeker payments or through your employer via Job Keeper payments it may be that you are able to manage your cash flow such that you do not spend all or any of the early release superannuation monies. If this were the case and you were comfortable to put the money back into super then you could recontribute the money as a personal concessional contribution and claim a personal income tax deduction for the amount.
Assuming that the money you contribute plus any employer contributions will not exceed your concessional superannuation contribution cap of $25,000 for the 2020 tax year then the $10,000 contribution could result in a tax refund. For example, if you made a contribution of $10,000 and your income is say $80,000, the tax benefit to you would be a tax refund of $3,450. Where you income was say $120,000, the tax refund would be $3,900.
We raise this as a possible tax planning scenario. However, in the light of the current economic climate, cash flow must be at the forefront of decisions.
Should you wish to discuss this or any other matter, please do not hesitate to contact our office 03 96291433 to discuss.