Getting money out of super
Conditions of release with cashing restrictions
|Former Temporary Residents - Departing Australia Superannuation Payment (DASP).|
|Severe financial hardship (trustee decision).|
|Compassionate grounds (application to APRA).|
|Termination of gainful employment (preserved amounts).|
|Attaining preservation age (Transition to Retirement - see Chapter 15 for further detail).|
|A release authority is given to the fund by the member or by the ATO. The amount released may be no more than the amount of the member's excessive tax liability.|
|A transitional release authority is given to the fund by the member. The amount released may be no more than the amount of the excessive non-concessional contributions specified on the release authority.|
Superannuation of a member who was a temporary resident of Australia may be paid in two ways:
- if the funds have not been sent to the ATO as unclaimed money a lump sum may be paid directly from a superannuation fund to the member under the departed temporary residents condition of release described below or
- if the fund has forwarded the member's benefits to the ATO as unclaimed money payments, the former temporary resident may claim their benefits from the ATO.
Superannuation benefits of a person who was a temporary resident, where at least six months have passed since the person's temporary visa ceased to be in effect and they have left Australia, are treated as unclaimed superannuation. Superannuation providers who hold these benefits are required to pay these amounts to the Commissioner of Taxation under the Superannuation (Unclaimed Money and Lost Members) Act 1999.
Under either scenario above, the payment to the temporary resident is taxed as a 'departing Australia superannuation payment' (DASP).
Departed temporary residents condition of release
Where a member of a fund was a temporary resident of Australia and all of the conditions listed below are met, the trustee must cash all of the member's benefits in the fund within 28 days of the request being lodged. These payments are known as 'departing Australia superannuation payments' and are subject to the withholding tax outlined below.
Residency and visa conditions for a departing Australia superannuation payment
- the member was a temporary resident of Australia
- the member is not an Australian citizen, New Zealand citizen or permanent Australian resident
- the member has left Australia
- the member's visa has ceased to be in effect.
There are different procedures for requesting DASPs above and below $5,000 as outlined below.
--If the member's withdrawal benefit in the fund is less than $5,000 the trustee requires evidence showing that the member was a temporary resident but the member's temporary visa has ceased to be in effect and a copy of the member's passport showing that the member has left Australia.
--If the member's withdrawal benefit is $5,000 or more the trustee requires a written statement from the Immigration Department that the member was a temporary resident but the member's temporary visa has ceased to be in effect; and the member has left Australia.
For guidance on how to request a DASP, go to the ATO's information page, Superannuation - information for temporary residents departing Australia at www.ato.gov.au
Who is a temporary resident?
Since 18 December 2008, a temporary resident has been defined as the holder of a temporary visa under the Migration Act 1958. Such a visa allows a person to remain in Australia for a specified period or until a specified event happens or while the holder has a specified status. An Australian citizen, a New Zealand citizen, a permanent Australian resident or a holder of an Investor Retirement visa or a Retirement visa are not temporary residents.
Unclaimed money payments
The ATO has to give a trustee a notice if it is satisfied that a 'former temporary resident' (see below) has a superannuation interest in the fund (Superannuation (Unclaimed Money and Lost Members) Act 1999). The notice requires payment in respect of the former temporary resident's benefit to the ATO as 'unclaimed money'. On payment to the ATO within the prescribed time, the trustee has no further liability to the member, and any insurance cover ceases.
The unclaimed money condition of release allows the super fund to pay the member's benefits as a lump sum to the ATO. The member then has the right to claim back the benefit from the ATO. These payments are also treated as 'departing Australia superannuation payments for tax purposes'.
Who is a former temporary resident?
Under the Superannuation (Unclaimed Money and Lost Members) Act 1999, a former temporary resident is defined as a person:
- Who under the Migration Act 1958 was the holder of a temporary visa (except any visa prescribed in the Regulations), and
- Who left Australia after starting to be a holder of the visa, and
- At least 6 months have passed since the later of the following events (or either of them occurred at the same time):
- the visa ceased to be in effect
- the person left Australia, and
- At least 6 months have passed since the later of the following events (or either of them occurred at the same time):
- The person:
- is not the holder of a temporary or permanent visa, and
- neither an Australian nor a New Zealand citizen, and
- Has not made a valid application for a permanent visa that has not been finally determined under the Migration Act 1958.
Requesting unclaimed money
The member can apply, in the approved form, to the ATO for payment to them of the amount paid to the ATO. Interest is only payable in limited circumstances.
Former temporary residents should, therefore, request cashing of their benefits directly from their super fund as soon as they are able, rather than having to apply for payment later from the ATO.
Other conditions of release for temporary residents
From 1 April 2009, only the following conditions of release will apply to the benefits of temporary and former temporary residents:
- departed temporary resident (see above)
- unclaimed money payments (see above)
- terminal medical condition
- permanent incapacity
- temporary incapacity and
- where the trustee is given a release authority (eg, for the release of excess contributions).
The other conditions of release; for example, relating to employment or the payment of an income stream on attaining the preservation age, are only available to temporary or former temporary residents if they satisfied such a condition before 1 April 2009.
These changes mean that from 1 April 2009 a trustee will need to know whether a member making a withdrawal request is or has ever been a temporary resident.
Taxation of departing Australia superannuation payments
Payments under either the departed temporary resident or the unclaimed payments condition of release (ie where the benefit is paid to the ATO as unclaimed money, then claimed by the member) are taxed as departing Australia superannuation payments.
A DASP is not assessable income and is not exempt income. However, recipients are liable to pay tax on the payment at the rates outlined in the table below (even if the client is aged 60 or over). The appropriate tax must be withheld by the fund trustee or the ATO when making the payment.
Working holiday maker (WHM)
A working holiday maker is a sub-category of temporary visa holder from 1 January 2017. A working holiday maker is an individual who holds:
- a Subclass 417 (Working Holiday) visa
- a Subclass 462 (Work and Holiday) visa or
- certain related bridging visas.
Working holiday makers are subject to a higher rate of tax on departing Australia superannuation payments than other temporary visa holders.
ASPs - tax treatment
|Tax component||Rate of tax|
|All former temporary residents (FTR)||FTR & not a WHM||FTR & WHMs|
|Taxable component (taxed element)||38%||35%||65%|
|Taxable component (untaxed element||47%||45%||65%|
Note: These tax rates are in addition to any tax payable on contributions or earnings within the client's fund.
Severe financial hardship
A person's severe financial hardship status is assessed by the fund trustee or RSA provider. There are two tests, either of which can be met to qualify under severe financial hardship. Persons who have reached their preservation age plus 39 weeks and have been receiving income support for more than 39 weeks can use either Test 1 or Test 2.
Based on written evidence provided by a Commonwealth department or agency:
1 This requirement is a subjective test assessed by the fund trustee. APRA has issued guidelines to all trustees on what may be considered to be 'reasonable and immediate family living expenses'.
Persons who have reached their preservation age and have been receiving income support for more than 39 weeks (eg receiving income support for 39 weeks after reaching age 55) can use either Test 1 or Test 2.
Examples of Commonwealth income support payments include: Newstart Allowance, Partner's Allowance and the Disability Support Pension. It excludes the Youth Allowance (for recipients who are undertaking full-time study) and Austudy payments.
Cashing restrictions for severe financial hardship
If a person meets the tests for severe financial hardship, the amount they can access from super is restricted as follows:
- For a person qualifying under test 1, the amount released from super in each 12 month period must be a single lump sum not less than $1,000 and not more than $10,000, and
- For a person qualifying under test 2, there are no cashing restrictions.
The Department of Human Services (DHS) has discretion to allow payment of preserved benefits in certain cases. Examples include:
- Payment on a loan is required to prevent foreclosure of a mortgage on a principal residence.
- To cover expenses in relation to a dependant's death, funeral or burial.
- To pay for medical treatment, medical transport, or medical related modifications to the person's principal home or vehicle for the member or a dependant.
Although the DHS must be satisfied that an application meets the criteria for early release of super, the final decision to pay out the benefit must be made by the trustee of the super fund.
Cashing restrictions under compassionate grounds.
The amount released from super for someone meeting the compassionate grounds condition of release must be:
- A single lump sum, not exceeding an amount that is reasonably required, and
- in the case of preventing foreclosure on a mortgage on a principal home, the amount released in each 12 month period must not exceed three month's repayments plus 12 month's interest.
As a first step it is wise to contact the relevant super fund to make sure it will allow the early release of super on compassionate grounds. If the member's circumstances meet those outlined for the early release of super benefits on 'specified compassionate grounds', it will be necessary to complete a DHS application form. The form can be downloaded from the Department of Human Services website at www.humanservices.gov.au or by contacting the DHS Early Release of Super Benefits Branch on 1300 13 10 60.
Termination of gainful employment (preserved amounts)
Preserved amounts must be taken as a non-commutable life pension or non-commutable life annuity where a member has terminated gainful employment with an employer who had, or any of whose associates had, at any time, contributed to the regulated super fund in relation to the member.
There are no cashing restrictions for restricted non-preserved benefits under this condition of release (refer to section 12.3).
A superannuation fund may pay a benefit to a member suffering temporary incapacity. This condition of release is commonly applied to Salary Continuance Insurance (SCI) held within superannuation. Only benefits that are not minimum benefits (ie an insured SCI payment) can be released under this condition of release. Temporary incapacity is where the member:
- Has ceased to be gainfully employed, or
- Has temporarily ceased to receive income under a continuing gainful employment arrangement, and
- Is suffering physical or mental ill health that caused the member to cease to be gainfully employed, and
- Is not permanently incapacitated.
Consequently, the temporary incapacity condition of release does not generally apply to a member's accrued benefits but instead is the mechanism which allows fund trustees to release salary continuance payments to eligible members.
Cashing restrictions for temporary incapacity
The amount of super released under temporary incapacity must be taken as an income stream (with specific restrictions) cashed from the regulated super fund for:
- The purpose of continuing (in whole or part) the gain or reward which the member was receiving before the temporary incapacity, and
- A period not exceeding the period of incapacity from employment of the kind engaged in immediately before the temporary incapacity.
For policies taken out prior to 1 July 2014, this condition of release may not be satisfied even though the member is successful in claiming on their SCI policy (for example, if the member was on unpaid leave or unemployed immediately prior to temporary incapacity).
This could result in the insurance proceeds being trapped in the superannuation fund and unable to be paid directly to the member. This issue should not arise in respect of new policies taken out on or after 1 July 2014, however, as new policies within super are only allowed to the extent that they align with the death, terminal illness, permanent incapacity or temporary incapacity condition of release.
Income stream restrictions under temporary incapacity
For the purposes of accessing super under temporary incapacity, the income stream must meet all of the following requirements:
- Cannot be commuted.
- Is paid at least monthly.
- Does not have a residual capital value.
- The total amount paid each month is fixed or varies during any period of 12 months by no more than 5% per annum, or the consumer price index (CPI).
|2017 Federal Budget proposal: First home super saver scheme
Effective 1 July 2017
Individuals will be able to make voluntary superannuation contributions in excess of super guarantee of up to $15,000 per year up to a total of $30,000 to purchase their first home. These voluntary contributions, can then be withdrawn for a deposit on a person's first home. Withdrawals will be taxed at marginal tax rates less a 30% tax offset and will be allowed from 1 July 2018.
First home savers will be able to salary sacrifice an amount from their pre-tax income directly into super. Individuals who are self-employed or whose employers do not offer salary sacrifice will be able to claim a tax deduction on personal contributions. However, any pre-tax contributions made under these rules must be within the concessional cap. As with other concessional contributions, these contributions will be generally taxed at 15% rather than the client's marginal tax rate.
First home savers will also be able to make non-concessional contributions under this scheme. However, these contributions will not be taxed when they are withdrawn.
The amount of deemed earnings that can be released under these rules will be calculated based on the 90 day Bank Bill rate plus 3% - currently equivalent to a deemed rate of return of 4.78%.
The Government has confirmed that the ATO will have the primary responsibility for administering the scheme, including:
The Government has also confirmed that while the concessional part of a release amount will be included in a person's taxable income, it will not flow through to other income tests used for other purposes, such as for calculation of HECS/HELP repayments, family tax benefit or child care benefit.
While the tax concessions available on contributions made under the First Home Saver Scheme may allow a first home buyer to save a larger deposit, many first home buyers may be unwilling to use the scheme if their additional contributions cannot be accessed until retirement if they don't end up buying a home.
It should also be noted that a person using the scheme will not be able to invest for growth to try and maximise their deposit, as the release amount will be calculated using a deemed rate of return.
To assist people to understand the advantages of the scheme the Government has provided an online estimator at www.budget.gov.au/estimator.
At the time of writing this proposal is not yet law.
Last modified: Thursday, January 11, 2018