The government has announced today (22 March) the second round of measures as part of its economic response to the coronavirus. This includes a range of measures that have a direct impact on superannuation, which includes:
- Temporary early release of superannuation
- Temporarily reducing super minimum pension drawdown rates
- Reducing social security deeming rates
This blog post is focusing on the temporary early release measure. You can click on the items above to be taken to the posts on other related topics.
Temporary early release of superannuation
The Government is allowing individuals affected by the Coronavirus to access up to $10,000 of their superannuation in 2019-20 and a further $10,000 in 2020-21 for eligible individuals.
Through an online application via myGov, an individual may be eligible to access:
- up to $10,000 of their super before 1 July 2020; plus
- a further $10,000 from 1 July 2020 – available until 24 September 2020.
For an individual to be able to apply for early release, they must satisfy one or more of the following requirements:
- They are unemployed; or
- They are eligible to receive a job seeker payment, youth allowance for jobseekers, parenting payment (which includes the single and partnered payments), special benefit or farm household allowance; or
- On or after 1 January 2020:
- You were made redundant; or
- 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.
Eligible individuals that can access their superannuation will receive these payments tax-free, that they will be treated as non-assessable, non-exempt income (NANE). This appears to be regardless of the proportion of taxable and tax-free components of an individual’s superannuation interests which must be paid proportionately as a lump sum. Any withdrawals will not affect Centrelink or Veterans’ Affairs payments.
How to apply
Applications will need to be completed online through the myGov website, www.my.gov.au, where the individual will need to certify that they meet the above eligibility requirements.
Once the ATO has processed the application, they will issue the individual with a determination, along with providing a copy to the super fund for the release of the super payment from the member’s account. The fund will make the payment directly to the individual – not further application needs to be made to the super fund by the member.
How it works for SMSFs
The ATO has updated their website about how a person can apply for a coronavirus early release payment from their SMSF on compassionate grounds. Ultimately, this process is consistent with that of APRA regulated funds, but for one key difference, which is outlined below in the relevant steps:
- The individual will need to apply to the ATO from mid-April through their myGov account.
- The ATO will assess the application and issue a determination of their individual’s eligibility to release an amount.
- When the individual has received the determination, they will issue to the trustee(s) of the SMSF who will then be authorised to make the payment (Note: this differs from APRA funds, where the ATO will also notify the super fund to automatically make the payment).
It is the trustee’s responsibility to ensure that the member is eligible for an early release payment from their super benefits. As part of the fund’s audit, you can expect a higher level of scrutiny from auditors to ensure that such payments have been made in accordance with this new cashing condition.
You can refer to the ATO website for further information about the Government’s COVID-19 economic response assisting SMSFs and their members
Smarter SMSF will have documentation available from mid-April 2020 for early release payments being made under compassionate grounds due to the coronavirus pandemic.
When can someone start to apply?
It is expected that applications for early release of superannuation will start from mid-April 2020.
Treasury has provided the following examples within their fact sheets to help understand how an individual may qualify for an early release super payment:
Example 1 – Employee impacted by reduced working hours
Ed works in a popular bar in Melbourne. As a result of the Coronavirus, Ed has had his work hours reduced from 40 hours on average in the second half of 2019 to 20 hours per week on average in May 2020. As a result, Ed determines that his hours over the last month have reduced by more than 20 per cent compared to the average of his hours over the last six months of 2019.
Ed decides to apply for the early release of $8,000 of his superannuation in May 2020 to help pay his rent and other living expenses. Ed self-certifies that he is eligible for early release on myGov. He could have applied for up to $10,000, but chose not to. Ed cannot seek any further early release of superannuation in 2019-20 on the grounds that he has been affected by the adverse economic effects of the Coronavirus.
However, Ed finds after 1 July 2020 that his hours continue to be reduced by more than 20 per cent compared to the average of his hours in the last six months of 2019. Ed decides to make a second application and self-certifies through myGov that he is eligible for early release. He is able to apply again for a release of up to $10,000 of his superannuation. Ed submits a second application for the full amount of $10,000 this time.
For each application, the ATO approves Ed’s early release and notifies both him and his superannuation fund. Ed has received a total of $18,000 of his superannuation in two separate payments. He will not be taxed on this amount and is free to spend this money on anything he chooses, or save it for future expenses. He is also free to recontribute any unused amounts to his superannuation in the future (within his contribution caps).
Example 2 – sole trader
Rachel is a sole trader with a catering business. At the end of July 2020, Rachel seeks to apply for an early release from her superannuation for the 2020-21 financial year.
Due to the economic effects of the coronavirus, Rachel’s turnover for July is $5,000 compared to $10,000 on average per month for the second half of 2019. Rachel therefore determines that her turnover has reduced by more than 20 per cent compared to her average turnover over the last six months of 2019.
Rachel self-certifies that she is eligible for early release and applies to have $10,000 released from her superannuation.
This is now law, with Coronavirus Economic Response Package Omnibus Bill 2020 having received Royal Assent on 24 March 2020.
Refer to the Economic Response to the Coronavirus page on the Treasury website for further information.