ATO, Compliance, financial advice, SMSF, Superannuation

Early release needs wider examination

SMSF Superannuation Illegal early release Early access CAANZ Chartered Accountants

The early release of superannuation should be addressed by looking at who is providing advice, but also reforming the rules to prevent inappropriate access.

The scale of the illegal early release estimate (IERE) released last week should not lead to any rule changes around SMSFs at the current time, but the regulations should be reviewed, an accounting body has stated.

Chartered Accountants Australia and New Zealand (CAANZ) superannuation and financial services leader Tony Negline said the ATO’s announcement that more than $630 million had been withdrawn from SMSFs illegally over a two-year period should be considered as part of a wider discussion on early access to super.

“On its own, the release could be seen or portraited as a disturbing picture. In our view, there is much more to the IERE and it must be kept in perspective,” Negline said in a blog post on the CAANZ website.

“We do not believe that wholesale reform of the rules about setting up and running an SMSF are necessary until we have more analysis of the ATO data and its ongoing early release strategies.

“Often, people gain access to their superannuation after speaking to a person or organisation that helps them achieve this. Typically these ‘advisers’ do not have a financial services licence.

“They fail to explain the dangers of illegally accessing retirement money, including the potential for the ATO to ban the person from being a SMSF trustee, which causes problems for the individual in other areas of their life and significant potential tax penalties.

“All those who work in the SMSF sector need to think about potential solutions to this problem, otherwise it will be left to the government to develop policies which may limit the flexibility of all SMSFs.

“Our preferred solution is that the law should be amended to allow unlicensed accountants to provide simple advice to their clients about the risks and dangers of setting up a SMSF and allowing them to suggest that it may not be in the client’s best interests.”

He also called on the government to review the rules relating to the early release of superannuation benefits on compassionate grounds.

The release of money from superannuation on compassionate grounds can take place for events such as treating life-threatening illnesses, palliative care and foreclosure of a mortgage over a family home, but official figures showed discretionary spending was now a key driver, he said.

“The Australian Prudential Regulation Authority Annual Superannuation Statistics says that in the 2022/23 financial year there were about 53,000 compassionate grounds applications paid,” he said.

“The ATO website reports that between 55 and 65 per cent of compassionate ground applications are approved … and the most popular category was for medical reasons which did not include palliative care.

“Of the medical reasons, 75 per cent of the amount allowed to be withdrawn was for dental or weight-loss procedures. About 8 per cent has been for fertility treatments.”

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