People who obtained early access to their superannuation should make sure that they were actually eligible to have done so or risk hefty penalties, according to the Institute of Public Accountants (IPA).
IPA chief executive, Andrew Conway has pointed out that the early release scheme has been based on member self-assessment and that those making use of the arrangements need to make sure that their actions will stand scrutiny.
“It is understandable that an individual or a small business owner may have cashed in a portion of their superannuation during these difficult COVID pandemic times just to keep their head above water,” Conway said. “However, the Early Release Super Scheme relies on self-assessment.”
“The fact that the scheme was designed to give speedy access to cash, means that the Australian Taxation Office (ATO) is limited in what it can do, to pre-assess individuals applying. Individuals who have accessed their super should not for a moment think that this means that the regulator has rubber stamped their eligibility. The checking mostly happens afterwards, and this is how the self-assessment process is meant to work.”
“Here lies the question: are the 2.1 million people who have accessed their superannuation eligible?” Conway said.
“The ATO is very clear on the eligibility rules and applicants under the scheme need to be fully aware of the penalties that may apply if the rules are breached. The scheme was put in place at the height of the pandemic to help individuals access emergency cash to deal with the financial consequences associated with COVID-19. Whilst the regulators cannot control how the money was spent, they can control whether those who accessed their super genuinely met the eligibility criteria,” he said.
“The ATO has a transparent window into what individuals earn, especially under single touch payroll. It is therefore feasible that ‘please explain’ letters will start to flow to those who have accessed their future nest egg and may not be eligible.”
“Failing the eligibility rules whether knowingly or in ignorance won’t count. The minimum penalty will include the cash withdrawn being part of the individual’s assessable income and paying tax at the respective marginal tax rate. Ordinarily, this amount would not have been taxed if received after preservation age.”
“A total disregard of the rules will also mean a fine of up to $12,600 could be imposed. The IPA strongly advises individuals who think they may not have satisfied the eligibility rules to contact the ATO and voluntarily explain their situation. A voluntary disclosure may help to avoid or reduce the imposition of penalties,” Conway said.