Natural Disasters and Access to Superannuation

This article was written by Olivia Long, and appeared on Morningstar.

The impact of Australia’s ongoing bushfire crisis is devastating. Not only are Australians losing their homes and entire belongings, but many are also hit by the loss of their business or means to generate an income. They may be in urgent need of cash as a result, and charitable and government support will be limited. In the first instance, people impacted may be entitled to a disaster recovery payment and should contact Centrelink.

The disaster recovery allowance is a short-term payment to help anybody if a declared disaster directly affects his or her income. You can access it for a maximum of 13 weeks, and is payable from the date you lose income as a direct result of the bushfires.

How does early access work?

Whilst the Australian Taxation Office (ATO) does allow for early access to superannuation under compassionate grounds or for those suffering ‘severe financial hardship’, its recommended access to super remains a last resort to those in need. This is due to the nature of superannuation, and its intended use to ‘provide an income upon retirement’. It may also be difficult to put money back into super after it is taken out.

Members of SMSFs and large super funds, however, may try to access their superannuation due to severe financial hardship, in addition to the disaster recovery payment. A super withdrawal due to severe financial hardship is paid and taxed as a super lump sum.

The minimum amount is $1,000 (unless a super balance is less than $1,000), and the maximum amount is $10,000.

Superannuation members can only make one withdrawal because of severe financial hardship in any 12-month period. Another option available to those eligible is to commence a transition to retirement pension, called a TRIS. It allows access to super without having to retire or leave a job. A TRIS permits super members to draw down a maximum of 10% of their super account balance during a financial year, which can be used to fund expenses. In an SMSF, funds are accessible immediately.

To be eligible, a member must have reached their preservation age (if another condition of release has not been attained). For those born before 1 July 1960, the preservation age is 55, but the age increases for those born after that date. For more details, see the ATO website.

Sympathetic judgement needed

Given the magnitude of the devastation caused by the bushfires, the Federal Government should allow early access to super to assist those impacted during these horrific times.

If you have been impacted, call our office. We can discuss your situation and contact the trustee of your super fund.

> Don’t sell your home when you are a non-resident

The law now provides that, if you sell your home in Australia, you will not get any exemption for the capital gain made if you are a non-resident of Australia at the time. An exception is, if you have been a foreign resident for a period of 6 years or less, and certain life events have occurred i.e. your death, or divorce (and equivalent) or terminal illness, or the death or terminal illness of your spouse, or child under 18 years old. Transitional provisions provide an exemption if the dwelling was held before 9 May 2017, and sold on or before 30 June 2020.

> Special rule for high-income employees with more than one employer

If you are an employee with more than one employer and salary exceeding $263,157, your employers’ contributions will result in you breaching the $25,000 concessional contributions cap. To avoid this, you can now apply to the ATO for an “employer shortfall exemption certificate”. An employer who receives this certificate will not have to pay SG for you. If you apply for this certificate for your employer, we recommend you negotiate to receive additional cash or non-cash remuneration, instead of SG contributions.