The Australian Government’s coronavirus economic stimulus package includes several options for individuals to obtain access to money in the short-term if they are financially impacted by coronavirus. One option is to allow a member to access up to $20,000 of their superannuation benefits before ‘retirement’ or attaining age 65.
In these uncertain times that we now live in, members are stressed about how to get through to the next pay period and may also be overwhelmed about the coronavirus statistics and media coverage. So, let’s cut to the chase. Here is what advisers, SMSF trustees and members need to know about the new ‘Temporary Early Access to Superannuation’ (‘TEAS’) scheme.
What is TEAS?
The TEAS is a new limb added to the existing condition of release of superannuation for compassionate grounds contained in the new reg 6.19B of the Superannuation Industry (Supervision) Regulations 1994 (Cth) (‘SISR’).
Who is eligible?
TEAS is available to members who are adversely economically affected by the coronavirus known as COVID 19. To be eligible, a member must satisfy one of the following criteria:
- The member is unemployed; or
- The member is eligible for one of the following social security payments:
- youth allowance for job seekers;
- parenting payment (both single and partner payments);
- special benefits; or
- farm household allowance; or
- On or after 1 January 2020:
- the member was made redundant;
- the member’s working hours were reduced by 20% or more (including reduced to zero); or
- the member is a sole trader, and their business was suspended or there was a reduction in turnover of 20% or more.
How much super can be accessed?
The maximum amount that a member can access is $20,000 in the following increments, noting that a separate application is to be made on each occasion:
- Up to $10,000 in the financial year ending 30 June 2020.
- Up to $10,000 in the financial year ending 30 June 2021.
Any TEAS amount that a member receives is tax free (ie, the amount is non-assessable and non-exempt income). There is also no PAYGo withholding or PAYGo reporting required. Further, any TEAS payment will not affect the member’s Centrelink or Veteran Affairs payments.
An eligible member can access both restricted preserved benefits and restricted non-preserved benefits that are in their superannuation fund. Naturally, a member can access any of their unrestricted non-preserved benefits at any time without satisfying a further condition of release including by way of a TEAS amount.
A TEAS amount must be paid as a single lump sum; it cannot be paid to the member in the form of a pension. Final applications must be received before 24 September 2020.
What if the member is being paid a pension?
If a member is being paid an account-based pension or a transition to retirement income stream (‘TRIS’) in retirement phase, then the amount required to fund the TEAS payment should first be commuted to accumulation before being paid to the member as a TEAS amount.
If a member is being paid a TRIS that is not in retirement phase, the amount should also first be commuted to accumulation before being paid as a TEAS amount. Note that a TRIS amount generally cannot be commuted but the new reg 6.19B of SISR authorises a payment of preserved moneys (after a TRIS is commuted).
How do you apply?
A member applies via their ‘myGov’ account. The ATO will review each application and determine whether the member satisfies the eligibility criteria and will confirm the total amount of the preserved benefits and/or restricted non-preserved superannuation benefits that they can withdraw (which cannot exceed $10,000 per application).
The ATO will then notify the member and the superannuation fund in writing of its TEAS determination. Once an SMSF trustee receives an ATO’s TEAS determination, the SMSF trustee must pay the TEAS payment to the member as soon as practicable without requiring any additional application from the member.
What other considerations are relevant?
There are a range of other factors that should be considered including but not limited to:
- Whether the SMSF deed requires updating to enable a TEAS withdrawal given this is a new condition of release that many SMSF deeds may not authorise. We confirm that the DBA Lawyers’ SMSF deed from January 2000 onwards authorises a TEAS payment. We would be pleased to review any other deed and update it, if requested.
- The financial impact that any TEAS withdrawal will have on the member’s overall superannuation retirement nest egg over the long-term.
- Ensuring the fund has sufficient cash flow to fund any TEAS withdrawal together with its ongoing operations in view of any financial stress on the fund resulting from the coronavirus.
- Preparing relevant trustee resolutions and updating the fund’s records.
The new TEAS condition of release may provide some extra cash to a member who is otherwise under financial strain if a member is unemployed, receiving certain social security payments, has recently been made redundant, or had their working hours or business turnover reduced by 20% or more.
However, there are a number of steps to ensure the TEAS amount withdrawn is appropriately managed. If the payment is not appropriately managed, a contravention of the SISR could occur resulting in potential penalties and the amount forming part of the member’s assessable income rather than being tax free.
You should ensure the SMSF deed authorises this payment and prepare appropriate trustee resolutions.
If you require any assistance regarding a member’s eligibility for the TEAS condition of release or the application procedure, please do not hesitate to contact us.
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This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional.
Note: DBA Lawyers hold a range of SMSF CPD training online. Our face to face seminars for the remainder of 2020 have been temporarily suspended. For more details or to register, visit www.dbanetwork.com.au or call Natasha on 03 9092 9400.
Daniel Butler, director ([email protected])
30 March 2020