When can I access my superannuation?

One of the biggest danger areas for trustees of SMSFs is allowing members to access their superannuation before they are legally entitled to get it.

The main way that this happens is when funds are paid to a member before they are eligible to receive them. This can occur when superannuation assets used for non-superannuation purposes. An example is when a non-business property is occupied by a member even if only briefly.

Before Transition to Retirement Pensions were introduced access to superannuation depended on a person's age and whether they satisfied a condition of release. Once a person turns 65 they have satisfied a condition of release and have unlimited access to their superannuation.

For those under 65, except for super benefits under $200, one of a number of conditions stipulated by the superannuation regulations must be met before superannuation benefits can be accessed.

For superannuation benefits of greater than $200 one of the following conditions of release must be met:

• Retirement
• Terminal medical condition;
• Severe financial hardship,
• Compassionate grounds,
• Permanent incapacity,
• Temporary incapacity,
• Termination of employment where benefit is less than $200,
• Death,
• Departing Australia permanently,
• Transition to retirement pensions,
• To pay an excess contributions tax liability,
• Up to 85 per cent of an excess concessional super contribution, and
• To pay a Division 293 tax assessment.

Cashing restrictions

There are restrictions placed on how much cash can be accessed depending on the type of condition of release being met. Under each type of condition of release the relevant cashing restriction is shown.

Retirement preservation age

To qualify for the retirement condition of release a person must have reached preservation age. The age at which a person reaches preservation age differs depending on when they were born. For those born on or before 30 June 1960 preservation age is 55.  The following table shows the different preservation age for people born after 30 June 1960.

Retirement

The retirement condition can only be met once a person has reached their preservation age. Once a person reaches preservation age there are different tests that must be passed before the retirement condition is met.

People aged 60 to 64

The retirement test is passed if they cease employment with an employer either as a result of resigning, being fired, or being made redundant.

People aged 55 to 59

The retirement test is passed when they cease employment with all employers and do not intend to work either full time or part time. If someone ceased employment and intends to work less than 10 hours a week they will be regarded as meeting this test.

Trustees of an SMSF under 60 must be very careful, that in the event of taking a retirement payout from their super fund, they can demonstrate they have properly met the retirement condition. At the very least they should write a letter to themselves as trustees saying they were retiring and did not intend to work full or part time again.

A minute would be then passed by themselves as trustees acknowledging the letter and passing a motion that as the member did not intend working more than 10 hours they had met the retirement condition. As long as the facts of the case support that the member did cease working this does not mean, if their circumstances change, they cannot ever work again.

The other conditions of release for accessing superannuation, except for retirement, can be used by a super fund member even if they are under preservation age. These conditions of release are very strict, can differ depending on a person's age, have limits on how much can be taken, and limits placed on who can access the super.

Cashing restrictions

None

Back to top

Terminal Medical Condition

This is one of the newest condition of release and has applied since the 16 February 2008. To meet this condition a member must have been diagnosed with a terminal illness and have less than 12 months to live. If by chance a person survives their terminal illness any future contributions will be preserved until another condition of release is met.

Before trustees can release benefits under this condition certificates from two medical practitioners must be obtained stating that the member has contracted an illness, or suffered an injury, that is likely to result in the death of the member in not more than 12 months from the date of the certificate. One of the medical practitioners must be a specialist practicing in the area of the illness or injury.

Cashing Restrictions

None

Back to top

Severe financial hardship

People aged under preservation age

Must be able to show they:

• have been receiving some form of Commonwealth income support for a continuous period of at least 26 weeks.
• that they are unable to meet reasonable and immediate living expenses.

Cashing restrictions

Once this test is satisfied a super fund member can only make one withdrawal a year of between $1,000 to a maximum of $10,000. As can be seen from the amounts that can be withdrawn, for people under preservation age, the access to super is temporary and limited.  

People of or over preservation age

If someone has passed their preservation age by at least 39 weeks, but are still under 65, they must be able to show:

• they are not working in a full or part time employment when they make the application.
• they have been receiving Commonwealth income support payments for a combined total of 39 weeks after reaching preservation age.

Cashing restrictions

When these tests are passed there is no limit on how much can be withdrawn as a lump sum.

Back to top

Compassionate grounds

To be able to access superannuation under this condition evidence must be provided that a member does not have the financial resources to pay:

• urgent medical expenses,
• the costs associated with illness, injury or death, or
• to prevent their house from being sold because mortgage commitments could not be paid.
• To meet this condition a member must provide certificates from two medical practitioners that the medical treatment is necessary due to a life threatening illness or injury, or to alleviate acute or chronic pain or mental disturbance, and the treatment is not available in the public health system.

The following are expenses included under urgent medical and associated expenses:

• for the treatment of life threatening illnesses,
• to alleviate acute or chronic pain ,
• to alleviate mental disturbance,
• to ease the suffering of a person with a terminal illness,
• to meet the costs of a person's death, funeral or burial,
• for medical transport of the person or a member of their family, or
• for home or vehicle modifications to meet the special needs of a severely disabled person.
• To be able to access superannuation, to avoid losing their home, a person must be able to prove that if they do not get their superannuation their home will be sold. The proof must be in writing from the financial institution or bank that holds the mortgage. It must state that their mortgage payments are overdue and the house will be sold if a payment is not made.

Cashing restrictions

Under this condition of release only single lump sums can be taken. There is also a requirement that the amount paid does not exceed an amount determined in writing by APRA. If a member of a SMSF needed to use this condition of release APRA should be contacted and asked to confirm in writing that the amount to be paid is not regarded as excessive.

Back to top

Permanent incapacity

Before a payment can be made using this condition the trust deed of the super fund must be checked to ensure this type of payment is authorised by the deed. If a payment as a result of permanent incapacity is allowed the person must have ceased employment due to their incapacity, and the trustee is reasonably satisfied that the member, due to physical or mental ill-health, is unlikely to ever work again in the type of employment they are qualified to do due to education, training or experience.

Trustees of an SMSF should make sure that they can produce medical certificates proving that the member, due to their incapacity, is unable to continue do the work they are qualified to do. It would also help if employment history records or copies of qualifications could be produced to prove what work the member was qualified to do.

Cashing restrictions

None

Back to top

Temporary incapacity

Apart from one exception this condition can rarely be met by a member of an SMSF, and usually applies to members of a defined benefit fund, as the payment cannot be made from a person's minimum benefits.

Super contributions made by employers and members are included as minimum benefits in an accumulation fund. As a result a guarantee cannot be given that temporary incapacity benefits will not be paid out of these minimum benefits in an accumulation fund.

The only time an SMSF can payout under this condition of release is if they have taken out insurance to cover members in the event of temporary incapacity.

For benefits to be paid out under this condition they must also:

• be paid as an non-commutable income stream or pension,
• not have a residual value that could be paid out once it finishes,
• be paid at least monthly,
• be for the purpose of allowing the member to return to working in the job they were in before the incapacity, and
• cannot be paid for a term longer than the member is temporarily incapacitated.

Cashing restrictions

The benefit must be paid to the member as a non-commutable income stream or pension, up to the level of their income before becoming temporarily incapacitated, and for a period of not more than the period of incapacity.

Back to top

Termination of employment where benefit is less than $200

Where a member has less than $200 in an employer sponsored super fund, their benefits can be accessed if they cease employment through resignation, redundancy or being fired.

Cashing restrictions

Benefits of less than $200.

Back to top

Death

Upon the death of a member, no matter what their age, their superannuation must be cashed out as soon as possible. The value of their benefits at death can then be paid to the member's dependants or their estate.

The definition of dependants for income tax purposes includes:

• current spouse,
• former spouse,
• de facto,
• any child, or
• any person that has an interdependency relationship with the super fund member.

A child can also include children from a marriage, those that are adopted, stepchildren, and those born out of wedlock.

For an interdependency relationship to exist the people must have:

• lived together,
• provide one or each other with financial support, and
• have provided domestic support and personal care by one or each to the other.

In addition the financial support must be relied upon and must be necessary to maintain a person's standard of living. For this test to be passed not all of the conditions must be met, but they should be seen as providing a broad framework where the facts of each case are taken into account in determining whether a person is a dependant.

The only exception to death benefits having to be paid out is when a member is receiving a reversionary pension. There is also the ability for the trustees of a fund to decide to pay a death benefit to a dependent in the form of a pension.

Cashing restrictions

None

Back to top

Departing Australia permanently

This condition of release does not often apply to SMSFs. Once a person ceases to be an Australian resident they cannot be a trustee of an SMSF. If there were only two members, and one left the country, either a company would have to be appointed to act as trustee, a new member trustee found, or the fund would have to be wound up. For the member departing Australia they can either have their benefit paid out under this condition or they can rollover their accumulated benefits into a commercial fund, industry fund, or a small APRA fund.

Only superannuation benefits accumulated after June 30, 2002 can be accessed under this condition if the member is leaving Australia permanently due to the cancellation or expiration of their eligible temporary residence visa. Differing levels of proof are required by the person leaving Australia depending on the amount of superannuation benefits being paid out.

Where the benefit is under $5,000 the super trustee if requested must be able to produce a copy of the visa, or other evidence, that shows the member's visa has either been cancelled or has expired. In addition a copy of the member's passport showing they have left Australia would have to be produced.

Where the benefit is $5,000 or over the trustees must be able to produce a statement provided by the Department of Immigration stating that the member had held a visa that had either expired or been cancelled, and that they have left Australia permanently.

Cashing restrictions

Effectively None

Back to top

Transition to Retirement pensions (TTR)

This condition of release has applied since July 1, 2005. These new pensions allow people to receive a pension despite them not having satisfied any of the other conditions of release.

To satisfy this condition of release the following extra conditions must be met:

• the person receiving the pension must be at least 55 or have attained preservation age,
• they must continue working part time but, as there is no definition of what working part time means, a transition to retirement pension can be accessed and the member remain working full time, and
• the pension must be paid as a non-commutable pension, in other words the super fund member can only access a pension income and does not have access to lump sum payments.

A transition to retirement pension can be ceased at any time by commuting the pension and rolling the funds back into an accumulation account in the superfund. The member's funds can either then remain in accumulation phase or be paid out once they meet any of the other conditions of release.

Cashing restrictions

A TTR pension can only be paid as a non-commutable pension, with the maximum amount payable not being greater than 10 per cent of the member's total benefit at the time of commencing the pension.

Back to top

To pay an excess contributions tax assessment

When the limits for maximum concessional and/or non-concessional super contributions were exceeded a penalty tax was payable. When this occurred the ATO issued a release authority for the super fund to pay the penalty. In this situation the trustees of the SMSF can pay the ATO the penalty but must retain the authority issued.

Cashing restrictions

The amount paid out by the super fund must be the lesser of:

• the amount stated by the member issued with the release authority;
• the amount of excess contributions tax stated on the release authority; or
• the total of the superannuation held by the fund for the person.
• Back to top

To meet the requirements of an excess concessional contributions release authority

As a result of the excess concessional contributions penalty tax system ceasing members of a super fund that receive a notice of excess concessional contributions determination from the ATO can elect to release up to 85 per cent of the amount of the excess concessional contribution.

The election to release must be made by the member within 21 days of receiving the excess concessional contributions notice and must be made on the approved form specifying the amount to be released. Once the election is made it cannot be revoked and the amount elected to be received can cannot be altered.

When the election to release has been received by the ATO it will issue a release authority to the super fund detailing the amount to be released. The amount specified in the release authority must be paid to the ATO within seven days. The payment cannot be made to the member.

The amount received by the ATO is first used to meet any tax payable on the excess concessional contribution. Where the amount released exceeds the extra tax payable on the excess contribution the Commissioner must refund the excess to the individual without unreasonable delay.

Cashing Restrictions

The amount paid out by the super fund must be the lesser of:

• the amount specified in the release authority; and
• the total of the amounts that can be released from the superannuation held by the fund for the person.

Back to top

Paying a Division 293 tax assessment

From July 1, 2012 people who earned more than $300,000, including amounts salary sacrificed as extra super contributions, paid an extra 15 per cent on the amount that their low tax super contributions exceed the $300,000 limit. From July 1, 2017 the threshold at which the extra 15 per cent tax is payable is reducing to $250,000. 

Low tax super contributions are effectively SGC and salary sacrifice contributions. They also include self-employed tax-deductible super contributions.

In calculating the $300,000/$250,000 limit a person's taxable income is adjusted for reportable fringe benefits and negatively geared investment losses.

When the Div 293 assessment is issued taxpayers will also receive an offer to have the Division 293 tax paid out by their super fund.

This offer is in the form of Division 293 tax release authority. A member can use the release authority and have the amount paid either to themselves or directly to the ATO.

SMSF trustees need to receive the Division 293 release authority within 120 days of the date printed on it and the payment must be made within 30 days of receiving the authority. A release authority cannot be actioned more than 120 days after its date of issue.

Cashing restrictions

The amount paid out by the super fund must be the lesser of:

• the amount specified in the release authority; and
• the total of the amounts that can be released from the superannuation held by the fund for the person.
• Back to top

Excess pension transfer balance cap commutation authority

Hopefully trustees of SMSFs will not receive a commutation authority from the ATO. If they do this will mean they have failed to deal with a breach of the $1.6 million pension transfer balance cap.

The process starts with the ATO issuing an excess transfer balance determination that advises the member of they have an excess transfer balance and what that excess is. This is the first step in the process that effectively forces a member to remove the excess they have in an  SMSF pension account.

Where a member has more than one pension account, and they receive an excess transfer balance determination, they can elect the income stream or streams that will be commuted or partially commuted to deal with the excess. The election must be made in the approved form within 60 days of a determination being issued by the ATO.

If a member receives an excess transfer balance determination that is incorrect they can object against it under the standard objection regime for taxation matters.

If the breach is still not corrected after the determination, the ATO issues a commutation authority to the superannuation fund stating that the income stream must be brought back to the required transfer balance cap limit.

An SMSF receiving a commutation authority has 60 days within which it must commute the excess as either as a lump sum payment or a roll over into an accumulation account.

If the amount is paid out, and the member aged 60 or over, there will be no tax consequences. If the member is under 60 tax could be payable depending on the taxable and tax-free components and whether they have had any lump sum superannuation payments previously.

Back to top