Individuals whose employment status changes after they have accessed their super early under the COVID-19 financial hardship measure face the prospect of proving they are not employing a recontribution strategy if legitimate contributions to their SMSF are restarted.
“It is quite conceivable that you may have an individual or client who has been made redundant or had their [work] hours reduced because of the coronavirus, and has later in the income year entered full-time employment. So they are now in a financial position to be able to make a contribution to super,” SMSF Association deputy chief executive and policy and education director Peter Burgess said at the industry body’s recent Technical Day 2020.
“If they have access to their [super] money early … it’s going to be very important that they show evidence that they were in financial hardship when they did apply for that amount to be released and that their purpose in withdrawing the amount was not for the purpose of recontributing those amounts back into super.
“So documentation there will be very important.”
Burgess pointed out the above scenario was one advisers need to potentially manage given the ATO’s adverse view toward individuals who have accessed their super benefits early on the pretext of COVID-19-driven financial hardship only to immediately recontribute those monies back into their fund to gain a tax advantage.
“We have to be very clear and very strong with our clients here that this measure is not to be used for withdrawing money and recontributing it back into super,” he warned.
The regulator has stipulated it will be scrutinising the applications for the second tranche of the early super release instrument of individuals who have been found to have employed a recontribution scheme from the previous time they accessed their retirement savings under the coronavirus economic relief measure.
