SMSF members who do not meet a condition of release by correctly terminating gainful employment may engage in illegal early access of superannuation, which can be avoided by clearly documenting their actions, a technical specialist has warned.
MLC Tech Connect senior technical services manager Julie Steed pointed out one of the retirement conditions of release was the termination of gainful employment and, from 1 July 2025, those aged over 60 but under 65 who have ceased work could access any superannuation benefits accrued to that point in time.
However, speaking during an adviser briefing today, Steed noted superannuants may view retirement differently than the ATO.
“If we look at gainful employment and termination of employment, this is an area where clients get quite confused because we have different definitions of retirement in our community,” Steed indicated.
“Gainful employment is being employed or self-employed for gain or reward in a business, trade profession, vocation, calling occupation or employment.
“[To access super] it’s really important an arrangement under which the member was gainfully employed has come to an end, so it’s actually legal termination for many of them.
“The fact they stopped going to the office every day because they had retired in their mind or stopped attending work, but are still being paid or still on the books, means employment has not actually come to an end.”
According to Steed the ATO would examine this status and this could lead to breaches of superannuation access rules.
“It is really important for clients to understand the ATO data-matching capabilities. If you told them you terminated employment and permanently retired and they see income still coming in, they will ask these questions,” she stated.
“As an individual super fund member, the single biggest sin that you can still have is illegal early access and if you haven’t met a condition of release, but you purport that you have, then that will potentially lead to the application of illegal early access.”
She pointed out people were likely to confuse their employment status after significant changes in circumstances, such as going from full-time to part-time or casual work, and the best way to prove they had ceased work was with employer-issued documentation, such as a termination letter and a pay-as-you-go payment summary.
Additionally, those employed in a family business could use the cancellation of an Australian business number to prove they were no longer working, while those in casual employment could provide correspondence stating they were no longer available for any form of work.
