Legal Tip 296: Legislation Governing the $10,000 early Release of Super

There is a lot of misinformation out there, both in this forum out in the general community, over accessing the $10,000 early release of Superannuation due to the Coronavirus Crisis.

Here is the actual legislation:

Regulation 4.22B Retirement Savings Account Regulations 1997

RETIREMENT SAVINGS ACCOUNTS REGULATIONS 1997 - REG 4.22B Release of benefits on compassionate ground--coronavirus


This is a new regulation which was inserted into the Regulations by Schedule 13 of Coronavirus Economic Response Package Omnibus Act 2020 which you can find here:

Coronavirus Economic Response Package Omnibus Act 2020



Read the legislation to see if you qualify to take out $10,000 from your superannuation. Here is a summary:

(1A) For the purposes of paragraph (1)(a), this subregulation applies in respect of the person if:

(a) the person is unemployed; or

(b) the person is eligible to receive any of the following under the Social Security Act 1991 :

(i) jobseeker payment;

(ii) parenting payment;

(iii) special benefit; or

(c) the person is eligible to receive youth allowance under the Social Security Act 1991 (other than on the basis that the person is undertaking full-time study or is a new apprentice); or

(d) the person is eligible to receive farm household allowance under the Farm Household Support Act 2014 ; or

(e) on or after 1 January 2020 the person was made redundant, or their working hours were reduced by 20% or more (including to zero); or

(f) for a person who is a sole trader--on or after 1 January 2020 the person's business was suspended or suffered a reduction in turnover of 20% or more.

 

Of course remember too that the Declaration is a matter for the ATO as Regulator and as the ATO so in either case the issue can come back to general tax law eg false declaration or a interpretation by the ATO on what "reduced working hours" means. And whether the taxpayer has undertaken a Part IVA scheme by recontributing to super. This doesnt suggest that all who recontribute breach Part IVA but I imagine anyone who sought to get release who then also completes Field D15 (Super Contribution Deductions) in their 2020 tax return could have a red dot on their head. I see its now a new prefill data item reported and cross matched between funds and taxpayers.

The declaration to the ATO is also a element of general tax law and at the time the declaraton is given is when the test applies. Not the day before or a week later or a maybe I might lose my job or .... Still a false decaration issue.

I would consider reg 4.22B as amended is a small (but factual) element of the overall issue. The Omnibus Bill also amended other tax rules (eg the amount is tax free) and other existing tax law provisions that cater for the penalty regime for example.

Many people had no reduced pay, no reduced pay and are registered for jobkeeper rather than jobseeker (or not) and now sweating bullets about what the ATO could do. I have had a few enquiries where the parenting payment, jobSEEKER etc have been applicable and I have allowed them to chill and realise they did nothing wrong. They probably should have checked before clicking "accept" in MyGov. Have seen a number who incorrectly assumed their Pty Ltd company (which is a trustee or dormant) complies with (f)....fail

 

I pulled out 10k last FY from my super because I'm unemployed (retired). Do I have to declare this as income on my 2020 tax return?

I also plan to pull out another 10k this FY but might do it towards the end of the cutoff date as I'm hoping my super balance will be greater by then.

 

Its tax free

 

Sweet

 

Yeehaa!

 

Hmmm....Are yout still unemployed for that to occur ? The eligibility applies to each release at the time of the declaration. Retirement or resignation is NOT unemployment. That said if you meet a condition of release it may well be tax free through ordinary withdrawal of a lump sum. If withdrawn incorrectly the $10K can be subject to tax if the Commissioner cancels the determiantion originally issued and then as it wasnt applied for as a lump sum it wont be tax free ! Risk of data mismatch but not being paid jobseeker could be a enquiry trigger.

 

How about if you lost four days a month (22%) whilst Corona-virus measures where put in place (roughly 22% loss of pay) but then got a bonus at end of Financial year that took you to less than 20% loss of pay

The company let them cash in annual leave to top up pay if they wanted to also (as long as you ensured you kept 4 weeks AL remaining)

Rosters and working hrs all changed

 

Depends. There is no income reduction test for employees. Its a hours based test in (g) . In theory if a person is unpaid but working a normal week in terms of hours of actions they arent entitled based on (g). eg Fred is the boss and he doesnt take pay but takes jobkeeper only but maintains working 5 days a week 38 hours a week until lockdown ended. Not eligible. His staff member Mary is receiving jobkeeper and is not asked to performs work but does assist 2 days a week in place of the normal 5 = Eligible as her hours are reduced 60%

And paid leave is not a reduction in hours as you are considered "on work" rather than "at work" just like sick or other forms of leave which are entitlements that allow absence from work but provide for payment. One key test is the words "were reduced" which implies a employer instruction or decision rather than employee taking leave entitlements (the ATO view). And in some instances people maintained working 38hrs but were paid for 30.4hrs (20%). They arent eligible if they worked 38 and were paid less for less hours. Many employers trimmed workers pay by 20%...these wont comply unless the worker worked less hours as well.

 

I've been living off rental income since 2007 and I'm under 50yo so I guess I'm not technically retired? I don't have a job so I guess I meet the criteria for being unemployed. I only do volunteer work twice a week doing Meals on Wheels but that is unpaid work.

 

Read my post, the answer is on it

 

The ATO may ask how you are unemployed. The SISR doesnt define the word so its ordinary meaning prevails. Social security laws refer to this as a guide : an unemployed person is, in broad terms, someone who does not have paid work but wants to have paid work. An essential requirement is that the person has a present intention and some capacity to be part of the labour market. Jobseeker is one way to demonstrate that. But a person can be unemployed and not receiving jobseeker. A person working (paid) two days a week in a job looking for more work may not be technically unemployed.

The JSP is a likely reference source 1.1.U.30 Unemployed (JSP) | Social Security Guide.

 

Unemployed takes its ordinary meaning here. Which would be a dictionary meaning.

 

@dunno found this regarding early release of superannuation.

Answered: CV19 - early release of super - ATO definition of ... - ATO Community

Going to get very interesting come tax time.

 

Hypothetically, if I did 30 hours overtime in one fortnight pay, then the following pay I did zero overtime, wouldn’t this technically count? It would equate to about 25% reduction in hours..

There is no fine print or further details on the 20% reduction in working hours box..

 

Is that a reduction in hours of 20%?

 

It doesnt prescribe a test. But its possible that the ATO could adopt a view either way but they may accept that as a reasonable interpretation. And a person who regularly works overtime and then it stops with a 20% reduction (eg a truck driver or hospo worker) may be very different to using a specific single pay period as you indicate.

The media announcement did suggest the basis allows simplicity. The EM also does prescribe a test and the prior fortnight wouldnt meet the test. A taxpayer may be found reckless to use that basis. The "usual hours" test may include o/time for some workers and not others maybe. depends what their usual hours are.

EM Para 13.14 The requirements about reductions in a person’s working hours or in their turnover as a sole trader are determined by reference to changes that have occurred since 1 January 2020. This requires a comparison of a person’s working hours or turnover at the time they make the application and their usual hours prior to 1 January 2020. For example, a person would be eligible to apply for a determination if they had a 20 per cent or more reduction in their usual working hours or turnover (sole trader) relative to the second half of 2019.

One matter that ATO could revert to is contained in the new law that says
if they have been affected by the adverse economic effects of Coronavirus
If the event of any "test" a court or trinubal could refer to the spirit and the intentions of the law. A costly dispute as it would need to court or tribunal application following the objection and appeal processes if the ATO says No.

 

The legislation is pretty vague so there is a lot of wiggle room
A person working 10 hours a week might drop down to 8 hours one week and qualify then go back to 10 hours again. A person working for a company they own might just reduce their hours and qualify.

 

People I work with are using the overtime reasoning I mentioned above for their 10k withdrawals.

At the very least it looks like there is enough grey area that they can at least ‘play dumb’ if the ATO come knocking.

 

Seems a very liberal interpretation. Misreading or misunderstanding doesnt absolve you of the requirement to comply with a law.

The ATO will likely be quite gracious to many BUT if a person recontributes thats a whole different matter.