ATO's compliance program
Early Access to Superannuation Preserved Benefits

The Australian Securities and Investments Commission (ASIC) and the Australian Taxation Office (ATO) have jointly warned the public against using illegal schemes promising access to their superannuation before retirement.

These schemes specifically target people on low incomes, and those in financial difficulty, such as those having trouble paying their phone bills, credit cards or mortgages," Mr Peter Kell, ASIC's Executive Director of Consumer Protection said.

"The promoters also single out retrenched workers and those living in rural and remote communities, particularly farmers and indigenous people," Mr Kell said.

"They may falsely claim you can withdraw your super, or use a self managed fund, to pay off debts, make a deposit on a home, or buy a car or holiday."

"In the worst cases, promoters of these schemes have stolen their clients' superannuation money. ASIC has successfully obtained jail terms for the most serious offenders."

Deputy Commissioner of Taxation, Mr Mark Jackson, said that under the scam, promoters urge people to set up a Self Managed Superannuation Fund (SMSF) into which they roll their preserved superannuation. The client is told that as trustee of the SMSF they can decide how its assets are spent.

"The promoter then charges a commission, usually 20 per cent or more of the fund's assets, for their services," Mr Jackson said.
"If people need early access to their superannuation on compassionate or extreme financial hardship grounds, they do not need to pay a promoter."

Legal early access to superannuation can be obtained by:

• The trustee of a superannuation fund releasing money on grounds of financial hardship, if the member satisfies very strict criteria set out in the Superannuation Industry Supervision Act.
• Early payment on compassionate grounds being approved by the Australian Prudential Regulation Authority (APRA), which processes applications, free of charge, if the applicant meets strict legislative requirements.

Mr Jackson said the ATO, ASIC and the superannuation industry are working closely to put a stop to these promoters and their schemes.

Anyone offered early access to their superannuation through a SMSF should immediately contact the Tax Office Superannuation Infoline toll free on 13 10 20 or the ASIC Infoline on 1300 300 630 to report any concerns.

The legal release of preserved superannuation before retirement is free of charge - there is no need to pay anyone a fee.

Applications can only be made on financial hardship or compassionate grounds and must be done as follows:

Financial hardship
Applications must be made to the trustee of the fund holding the superannuation money. Generally the applicant must show that they have received welfare benefits (Centrelink unemployment or Newstart benefits) for a fixed period and that they are unable to meet their day-to-day living expenses. Superannuation monies will only be released to cover a person's everyday living expenses and the release is limited to one payout of no more than $10,000 during a 12-month period.

Compassionate grounds
Applications must be made to the Australian Prudential Regulation Authority. Superannuation monies can be released to pay for medical treatment and associated transport requirements, home or motor vehicle modifications to cater for those with severe disabilities, palliative or associated expenses or for the purpose of making mortgage repayments, where foreclosure is threatened by the mortgagor.

Penalties for Illegal Early Release of Super
The ATO has warned that, from 3 July 2003, improper or illegal early release of superannuation benefits will result in those benefits losing their concessional tax treatment; they will face tax of 48.5%. Prior to this amendment, superannuation benefits enjoyed concessional tax treatment whether released according to law or not.

Trustees of superannuation funds who knowingly allow improper early access to superannuation benefits for members already face various penalties. These penalties include up to five years in jail and/or fines of up to $220,000 for an individual trustee or $1.1m for a corporate trustee.

It is important to note that members of SMSFs should be aware of these provisions, because as they are also trustees of their funds they face the loss of concessional tax treatment on their benefits and also face the penalties applied to trustees.