Superannuation fund members have been warned not to ‘game’ the temporary early release provisions, with an SMSF service provider warning the ATO will be watching their use closely.
Heffron head of SMSF technical and education services Lyn Formica said: “The stated purpose of these provisions is to allow people to release money to assist that person in dealing with the adverse affects of COVID-19.”
Formica made the comments as part of a webinar last Friday in which she noted the new early release provisions for superannuation came with few restrictions, including no waiting period, no income or asset tests, no rules on how the money can be spent and those wishing to apply for early release would self-assess their own eligibility.
However, she pointed out that if superannuation funds were to be used to provide relief, applicants would have to certify their eligibility to the ATO, which is overseeing the release of funds for both Australian Prudential Regulation Authority-regulated funds and SMSFs.
“So, presumably the ATO application is going to ask that question. It will ask if you have suffered because of the consequences of COVID-19,” she said.
Heffron chief executive Meg Heffron, also speaking during the webinar, added that it was possible to withdraw the early access amounts of $10,000 and recontribute them, but that would run counter to the nature of the provisions.
“We have been asked if someone can take the $20,000 out and put it back in again over two years as a personal tax deduction or non-concessional contribution to improve the tax-free component,” Heffron said.
“Theoretically, yes, but like Lyn, I am assuming that one of the questions the ATO will ask you to agree to is that you need this money to help you get through this current time, and to turn around and put it straight back in, it does look dodgy.”
Formica added: “This is a great concession for the government to offer and if we see people rorting the system, it will be closed off very quickly.”
In a statement released on Friday regarding its consultation with the super sector over early release, the ATO stated it “will manage the eligibility criteria with strict guidelines and messaging for individuals to accurately assess their eligibility”.
“There will also be warnings about penalties for making false and misleading statements to deter inappropriate use,” it added.
“There will be appropriate checks in place to identify and reject duplicate applications and the ATO will be able to undertake post-issue compliance work based on data and other information held in ATO systems.”