COVID-19 early release measure extended and integrity warning from ATO

27 Jul 2020

Alex Denham

Senior SMSF Specialist

Early Release Application Deadline

Originally set to close on 24 September 2020, the Government have announced that the application period for individuals financially impacted by the COVID-19 situation to apply for the early release of up to $10,000 from their super will be extended to 31 December 2020.

This is a simple amendment of the SIS Regulations that does not need debating in Parliament, so we expect that the change should go through without interference.

In a fact sheet issued by Treasury, it appears that no other features of the early release measure are to be changed or amended – this is purely an extension of the application deadline for those wishing to access their super on these grounds in the 2020/21 year.

Refer to our Eligibility for Early Release chart to determine if you or your clients can apply.

Note this extension applies only to Australian and New Zealand citizens and permanent residents. Eligible temporary visa holders were given an opportunity to withdraw up to $10,000 before 1 July 2020, however are not eligible in 2020/21 – this has not changed.


COVID-19 Early Release of Super – Integrity and Compliance

The ATO have issued a warning that they will take compliance action where individuals deliberately exploit the system and advise that they have already stopped applications in some cases and reviewed circumstances post application processing in others.

They are using data sources such as Single Touch Payroll (STP), income tax returns, super fund reporting and third parties such as Services Australia and Home Affairs to check for incorrect claims.

Behaviours that will attract ATO attention include:

  • applying when there is no change to salary and wage or employment information (tracked through STP)
  • artificially arranging affairs to meet the eligibility criteria
  • making false statements or fraudulent attempts to meet the eligibility criteria
  • temporary resident applicants attempting to apply as a permanent resident or citizen after 1 July 2020
  • withdrawing and recontributing super for a tax advantage.

Individuals who are unable to demonstrate their eligibility when the ATO asks for evidence may have the amount withdrawn included in their assessable income and taxed at marginal rates.

The ATO warn that they may also apply the general anti-avoidance rule for income tax (ie Part IVA) in relation to a COVID-19 early release of super arrangement if an individual enters into a scheme mainly for a tax benefit.

For example, someone who made a $10,000 withdrawal in 2019/20 under this measure, then contributed $10,000 as a non-concessional contribution (NCC) back into their super only to apply for another $10,000 in 2020/21 will likely find themselves under scrutiny.

Note this does not preclude someone from returning unused amounts back to their super fund as a contribution if their circumstances improve. It is the deliberate withdrawing and recontributing back for a tax advantage that will attract ATO attention.

The early release measure has received criticism from some as the level of withdrawals already made have surpassed original forecasts and there are concerns about the long-term impact on retirement incomes. However, clearly the Government have determined that the economic situation justifies an extension and further leakages from the retirement savings system.  For many Australians, the immediate need for cash will – for now - outweigh the importance of saving for the future.

Perhaps this will pave the way for meaningful superannuation reform in the future to encourage higher savings levels in recovery and beyond.