ATO tips for Aussies considering accessing their super early

ATO tips for Aussies considering accessing their super early

Have you been hit hard financially by the economic impacts of COVID-19? You may be considering joining the millions of Australians who have dipped into their super to get them through this rough time.

The latest figures from the Australian Taxation Office (ATO) released to RateCity show that 2.57 million unique applications for early super release have been approved, totalling $30.2 billion. 

This equates to an average amount of $11,750 being withdrawn per person.

The government initially capped the total that could be withdrawn at $10,000 but has allowed for repeat requests as of this new financial year.  

If you’re looking to dip into your super for financial support, the ATO's Assistant Commissioner Sonia Corsini has some handy tips that you may want to know before you begin your application.

Top tips from the ATO for early super withdrawal

1. Are you eligible for early super withdrawal?

It's clearly important to make sure you can withdraw your super, and if you're looking to this approach, it might be time to get some reading done and dusted.

"The eligibility criteria is outlined on our website," said Ms Corsini. It’s really important that you carefully read the criteria and only apply if you meet it. If you’re not sure, ask your tax professional or financial advisor for advice about eligibility and whether accessing your super is the right decision for you. If you’re a temporary resident, you are not eligible to apply from 1 July 2020." 

 2. Is your record keeping in order? 

You may not think those records matter, but financial details could be everything when it comes to having the ATO approve your application.

"We don’t ask you to include supporting evidence when you submit your application, but you should keep good records to support your application. For example, payslips or bank statements or letters of dismissal from your employer," said Ms Corsini.

"We might ask you to explain how you assessed your eligibility and provide evidence to us. If you are unable to demonstrate your eligibility, we may revoke the determination that we issued in respect to your application. That means that any money you withdrew from super will be taxable and you’ll need to include it in your tax return. In addition to this, we may apply financial penalties for the most serious cases.

"If you think you may have done the wrong thing, it is much better to come forward to make a voluntary disclosure than to wait to be audited. If in doubt on how to proceed, we recommend seeking the advice of a tax professional. We know people make mistakes so we will work with you to help to remedy your position" said Ms Corsini.

3. Have you linked to ATO on myGov?

"You’ll need to be linked to the ATO on myGov in order to apply. If you aren’t already linked to the ATO on myGov, follow the instructions at ato.gov.au/MyGovLinking," she said.

These days, everything is to an online presence, and there's no exception here. Make sure your myGov is connected to the ATO, otherwise you might be in for a hard time. 

4. Take your time and please be patient

Even if you've decided that yes, you'll be getting money out from super, Ms Corsini advises taking your time to ensure all the details are right. 

"Take your time with your application, and don’t rush! Mistakes can slow your application and payment down unnecessarily. Double check details like your bank account details and make sure they are correct before submitting," she said. 

"And once you have lodged your application, please be patient. It’s a busy time but we are working as hard as we can to process applications quickly and we know the funds are processing payments as quickly as they can" said Ms Corsini.

5. Watch out for scammers! 

And finally, while you're being careful about details, make sure to be cautious about anyone asking to go through the work for you. Scammers are about and will happily take your money if you let them, and we doubt you'd want that to happen.

"Applying for early access to your superannuation under the COVID19 scheme is a free service. You do not need to pay someone to do it for you. If you receive a text message or e-mail stating that your myGov details have been changed, or that you have applied for early release of super and you have not, don’t ignore these messages: check your myGov, call the ATO and your super fund to make sure your identity has not been compromised."

"But don’t click on any links – one technique used by scammers to steal your information is to mock-up messages which appear to be from the ATO. To see how to identity and report a suspected scam, head to ato.gov.au/scams" said Ms Corsini.

  • Keep in mind that superannuation is there to support you in retirement. Raiding your nest egg may make a serious dent in your final balance - a $20k dent if you're not careful. 

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Learn more about superannuation

What should I know before getting an SMSF?

Four questions to ask yourself before taking out an SMSF include:

  1. Do I have enough superannuation to justify the higher set-up and running costs?
  2. Am I able to handle complicated compliance obligations?
  3. Am I willing to spend lots of time researching investment options?
  4. Do I have the skill to make big financial decisions?

It’s also worth remembering that ordinary superannuation funds usually offer discounted life insurance and disability insurance. These discounts would no longer be available if you decided to manage your own super.

How do you set up superannuation?

Before you set up a superannuation account, you’ll need to check if you’re allowed to choose your own fund. Most Australians can, but this option doesn’t apply to some workers who are covered by industrial agreements or who are members of defined benefits funds.

Assuming you are able to choose your own fund, the next step should be research, because there are more than 200 different superannuation funds in Australia.

Once you’ve decided on your preferred superannuation fund, head to that provider’s website, where you should be able to fill in an online application or download the appropriate forms. You’ll need your tax file number (assuming you don’t want to be charged a higher tax rate), your contact details and your employer’s details (if you’re employed).

How much money do you get on the age pension?

Pension payments can be reduced due to the income test and asset test (see ‘What is the age pension’s income test?’ and ‘What is the age pension’s assets test?’).

Here are the maximum fortnightly payments:

Category

Single

Couple each

Couple combined

Couple apart due to ill health

Maximum basic rate

$808.30

$609.30

$1,218.60

$808.30

Maximum pension supplement

$65.90

$49.70

$99.40

$65.90

Energy supplement

$14.10

$10.60

$21.20

$14.10

TOTAL

$888.30

$669.60

$1,339.20

$888.30

What is lost superannuation?

Lost superannuation refers to savings in an account that you’ve forgotten about. This can happen if you’ve opened several different accounts over the years while moving from job to job.

What are the age pension's residence rules?

On the day you claim the age pension, you must be in Australia and you must have been an Australian resident for at least 10 years (with no break in your stay for at least five of those years). The following exceptions apply:

  • You’re exempt from the 10-year rule if you’re a refugee or former refugee
  • You’re exempt from the 10-year rule if you’re getting Partner Allowance, Widow Allowance or Widow B pension
  • You can claim the age pension with only two years of residency if you’re a woman whose partner died while you were both Australian residents
  • You might be able to claim the age pension if you’ve lived or worked in a country that has a social security agreement with Australia

How do you calculate superannuation from a total package?

Superannuation is calculated at the rate of 9.5 per cent of your ‘ordinary-time earnings’. (For most people, ordinary-time earnings are their gross annual salary or wages.) So if you had a salary of $50,000, your superannuation would be 9.5 per cent of that, or $4,750. This would be paid on top of your salary.

As the Australian Taxation Office explains, some items are excluded from ordinary-time earnings. They include:

  • Overtime work paid at overtime rates
  • Expense allowances that are fully expended
  • Expenses that are reimbursed
  • Unfair dismissal payments
  • Workers’ compensation payments
  • Parental leave
  • Jury duty
  • Defence reserve service
  • Unused annual leave when employment is terminated
  • Unused long service leave when employment is terminated
  • Unused sick leave when employment is terminated

Although the superannuation guarantee is currently at 9.5 per cent, it is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

What happens to my insurance cover if I change superannuation funds?

Some superannuation funds will allow you to transfer your insurance cover, without interruption, if you switch. However, others won’t. So it’s important you check before changing funds.

What happens if my employer goes out of business while still owing me superannuation?

If your employer collapses, a trustee or administrator or liquidator will be appointed to manage the company. That trustee/administrator/liquidator will be required to pay your superannuation out of company funds.

If the company doesn’t have enough funds, in some cases company directors will be required to pay your superannuation. If the directors still don’t pay, the Australian Securities & Investment Commission (ASIC) might take legal action on your behalf. However, ASIC might decline to take legal action or might be unsuccessful.

So there might be some circumstances when you don’t receive all the superannuation you’re owed.

What superannuation details do I give to my employer?

When you start a job, your employer will give you what’s called a ‘superannuation standard choice form’. Here’s what you need to complete the form:

  • The name of your preferred superannuation fund
  • The fund’s address
  • The fund’s Australian business number (ABN)
  • The fund’s superannuation product identification number (SPIN)
  • The fund’s phone number
  • A letter from the fund trustee confirming that the fund is a complying fund; or written evidence from the fund stating it will accept contributions from your new employer; or details about how your employer can make contributions to the fund

You should also provide your tax file number – while it’s not a legal obligation, it will ensure your contributions will be taxed at the (lower) superannuation rate.

How much superannuation should I have at age 40?

The amount of superannuation you should have at age 40 is based on how much money you need to have at retirement. That, in turn, is based on how much money you expect to spend each week during your retirement. That, in turn, depends on whether you expect to lead a modest retirement or a comfortable retirement.

The Association of Superannuation Funds of Australia (ASFA) estimates you would need the following amount per week:

Lifestyle Singles Couples
Modest $465 $668
Comfortable $837 $1,150

Here is the superannuation balance you would need to fund that level of spending:

Lifestyle Singles Couples
Modest $50,000 $35,000
Comfortable $545,000 $640,000

These figures come from the March 2017 edition of the ASFA Retirement Standard.

The reason people on modest lifestyles need so much less money is because they qualify for a far bigger age pension.

Here is how ASFA defines retirement lifestyles:

Category Comfortable Modest Age pension
Holidays One annual holiday in Australia One or two short breaks in Australia near where you live Shorter breaks or day trips in your own city
Eating out Regularly eat out at restaurants. Good range and quality of food Infrequently eat out at restaurants. Cheaper and less food Only club special meals or inexpensive takeaway
Car Owning a reasonable car Owning an older, less reliable car No car – or, if you do, a struggle to afford the upkeep
Alcohol Bottled wine Casked wine Homebrew beer or no alcohol
Clothing Good clothes Reasonable clothes Basic clothes
Hair Regular haircuts at a good hairdresser Regular haircuts at a basic salon Less frequent haircuts or getting a friend to do it
Leisure A range of regular leisure activities One paid leisure activity, infrequently Free or low-cost leisure activities
Electronics A range of electronic equipment Not much scope to run an air conditioner Less heating in winter
Maintenance Replace kitchen and bathroom over 20 years No budget for home improvements. Can do repairs, but can’t replace kitchen or bathroom No budget to fix home problems like a leaky roof
Insurance Private health insurance Private health insurance No private health insurance

 

 

How do you open a superannuation account?

Opening a superannuation account is simple. When you start a job, your employer will give you what’s called a ‘superannuation standard choice form’. Here’s what you need to complete the form:

  • The name of your preferred superannuation fund
  • The fund’s address
  • The fund’s Australian business number (ABN)
  • The fund’s superannuation product identification number (SPIN)
  • The fund’s phone number
  • A letter from the fund trustee confirming that the fund is a complying fund; or written evidence from the fund stating it will accept contributions from your new employer; or details about how your employer can make contributions to the fund

You might want to provide your tax file number as well – while it’s not a legal obligation, it will ensure your contributions will be taxed at the (lower) superannuation rate.

How do you get superannuation?

You’re automatically entitled to superannuation if:

  • You’re over 18 and earn more than $450 before tax in a calendar month
  • You’re under 18, you work more than 30 hours per week and you earn more than $450 before tax in a calendar month

Am I entitled to superannuation if I'm a contractor?

As a contractor, you’re entitled to superannuation if:

  • The contract is mainly for your labour
  • You’re over 18 and earn more than $450 before tax in a calendar month
  • You’re under 18, you work more than 30 hours per week and you earn more than $450 before tax in a calendar month

Please note that you’re entitled to superannuation even if you have an Australian business number (ABN).

What is salary sacrificing?

A salary sacrifice is where your employer takes part of your pre-tax salary and pays it directly into your superannuation account. Salary sacrifices come out of your pre-tax income, whereas personal contributions come out of your after-tax income.