This Monday, 20 April 2020 starts the process for many individuals looking to apply for an early release of super on compassionate grounds due to the coronavirus. This process requires individuals to determine eligibility and self-certifying in the application process – it does not require evidence to accompany the application, but does require the individual to retain evidence to support their application.

It is important to note that superannuation cannot be released from a pension account under the coronavirus early access arrangement, which places a restriction on benefits only being withdrawn from preserved and restricted non-preserved benefits. This means that where a member is drawing a retirement phase income stream (e.g. Account Based Pension), they will have already has met a condition of release with a nil cashing restriction, and have access to the capital supporting the pension.

However, this is not the case with a transition to retirement income stream (TRIS), which is likely to include preserved and restricted non-preserved benefits as the cashing condition remains where the member has only met a condition of release of reaching preservation age (see item 110 in Schedule 1 of SIS Regulations).

A TRIS is required to ordinarily meet the conditions of account based pensions, along with the additional requirements set out within:

SISR 6.01(2) that apply to annual payments from the pension (i.e. 10% maximum); and
SISR 6.01AB on when a super lump sum resulting from the commutation of a TRIS can be cashed.

The ATO has stated within its COVID-19 early release of super – design and implementation information that the ability to allow access under compassionate grounds due to the coronavirus does not vary the circumstances in which pension payments may be made from a TRIS, or the circumstances in which an amount commuted from a TRIS can be cashed out of a super fund. That means, no amounts in excess of what is already allowed to be cashed from a TRIS can be released under the COVID-19 early access arrangements – i.e. a 10% maximum still applies.

Partial rollback back to accumulation

To address this position, it is possible for a member who is being paid a TRIS to be able to partially commute an amount back to accumulation to allow a withdrawal under the compassionate ground due to coronavirus. In this case, the preserved amount (or restricted non-preserved) may then be eligible to be released, which the payment rules will continue to apply to the TRIS for the remainder of the financial year.

Let’s look at the following example to understand this further:

Example

Penny (58) is drawing a TRIS from her SMSF, with an account balance of $200,000 at 1 July 2019. For the 2019-20 financial year, she has a minimum of $8,000 and maximum of $20,000.

Unfortunately due to COVID-19, Penny has been stood down from her job and is looking to access an amount of $10,000 from her superannuation under the compassionate ground due to coronavirus. During the financial year to date, she has contributed $4,000 into her accumulation account.

On the basis that Penny will be drawing the 10% maximum of her TRIS for 2019-20, she is ineligible to take an further amount from the pension under this ground. Therefore, any release amount would be limited to $4,000 from her SMSF, being the accumulation balance. However, if Penny partially commutes an amount of $6,000 and transfer this back to accumulation, she will be able to access this amount as well under the compassionate ground, providing an additional $10,000 on top of the $20,000 maximum pension from the TRIS.

Check the deed

It is important the whilst the member may apply and certify to the Commissioner for the early release of super on compassionate grounds due to coronavirus, the fund’s deed must allow for a payment to be made under compassionate grounds. It does not specifically require the deed to allow for the new ground due to coronavirus, but should specify the ability to make the payment on the basis of compassionate grounds.

Below is an extract of Rule 25.1(f) of the Smarter SMSF deed that would authorise a coronavirus early release payment:

Get your documentation in order

The other critical aspect to this process is to ensure that the member and fund have adequately documented to release a payment from the SMSF under compassionate grounds due to coronavirus. Whilst the initial myGov application requires the individual to self-certify, it is the subsequent process that should be documented with the trustee evidencing the Commissioner’s determination and ultimately the fund’s ability to make the payment to the member.