Superannuation tax loophole for early access stimulus?

Discussion in 'Superannuation, SMSF & Personal Insurance' started by Simon Hampel, 2nd Apr, 2020.

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  1. Simon Hampel

    Simon Hampel Founder Staff Member

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    Read this article on the ABC website: There's a coronavirus super loophole that could save you $5000

    ...

    Here's how it works

    It is linked to the decision to temporarily allow the early release of $10,000 in super this financial year and $10,000 the next.

    When Parliament approved the Coronavirus Economic Response Package Omnibus Bill 2020 last week, they put no new restrictions on how people could contribute into super.

    This means that it's possible to voluntarily contribute $10,000 of your pre-tax income into super over the next three months, and also apply to withdraw a $10,000 lump sum from super tax-free at some point before June 30.

    You still end up with $10,000 in your pocket.

    But if you contribute through a salary sacrifice arrangement with your employer and stay within the concessional contributions limits, your voluntary contributions will be taxed at 15 per cent rather than your marginal personal tax rate.

    ...

    Who can do it?

    ... the arrangements are targeted at those who have been adversely impacted by the coronavirus. On or after January 1, 2020, working hours (or turnover for sole traders) have to have been fallen by at least 20 per cent.

    ... read more
    You should read the entire article to understand it fully - I've only summarised part of it here.

    For our resident accountants - is this something you would be advising your clients to look at if they qualify?

    What do you think of the chances that the government will move to close this loophole?

    Personally, I'm not entirely sure that this is the kind of thing that should be published in the media because I'm afraid that some people will either misread it or will act without getting the proper advice and could end up worse off than they were before, especially if the government changes the rules.
     
  2. Trainee

    Trainee Well-Known Member

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    In principle, isnt it hard to say you were adversely affected by coronavirus if you do this sort of round robin deal?
     
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  3. Simon Hampel

    Simon Hampel Founder Staff Member

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    It will come down to exactly how the government defines "adversely impacted" - in general it will come down to your income dropping from what I've read anyway. Just because your income has dropped, doesn't mean that you necessarily wouldn't be able to take advantage of tax planning.
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    Hope accountants are not advising on this as it would be financial advice. If they hold an AFSL it would be ok
     
  5. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Promoter penalties will apply to the efforts to recommend a tax benefit (tax agent or not). What I have seen so far is loads of people still working suggest this strategy. For those genuinely impacted I see no concerns. But a working person who thinks they can apply as the cash is better in their offset could face a world of pain. Data matching 101. For all who sought release cross match to centrelink or jobseeker and cross match to contributions of $5K + in the period March to June 2020. Ping. 100% review - Did you illegally access your super ? letters ? By making a false declaration. That is a hefty penalty on top.

    The process to seek release has a major condition. Impacted persons. To access release a self disclosure if required to the Commissioner who will give a (largely automated) determination. If a taxpayer mistates their eligibiity then it may be cancelled after the event and the withdrawal subject to (illegal access) withdrawal rules + false declaration penalties. I dont believe the Commissioner can cancel the deduction claimed though.

    Some super funds may not process the requested release if suitable evidence is not provided too. A determination is not a order. It merely permits a withdrawl. The trustee may need to still comply with SISA Regs and the Act.
     
    Last edited: 2nd Apr, 2020
  6. James Bond

    James Bond Well-Known Member

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    I think this only works if you have contributed $15,000 or less in concessional contributions in the tax year already? Because if you and/or your employer have contributed $25,000 already and then you withdraw $10,000 you won't be able to put it back at 15% tax rate? Or have I missed something.
     
  7. JohnPropChat

    JohnPropChat Well-Known Member

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    With some constraints, one can use catch up concessional contributions if any left from last year.
     
  8. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    The Commisioner is due by 14th April to release the determination application at www.ato.gov.au . Any constraints will likely be evident at that time.

    One of the dangers in timing. The ATO may be swamped and delays in issue of determinations could happen since the ATO sends this direct to the fund. Its paper based so it relies on post. Then the fund will need certain info to make a payment and ID requirements etc. Industry funds have already flagged this concern. And then applicants receive the funds and then assume you can recontribute it in time for 30 June knowing you have no financial need for the $$$ and then make that contribution. On strategy for those eleigible is patience. The entitlement to catch up caps is available to tax agents and may be in MyGov but isnt live data for 2020 contributions. The fund may be aood source but some employers could pay on 28th June and you wont know and then face excess contributions that woud limit the concessional amount to be claimed (yes it can be reduced !! by the emolyee, not the employer)

    A lot of if's and maybe's for anyone seeking to game the system
     
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