Media Watch (general advice only…..)
You may be aware that one of the many government stimulus measures announced is to allow, in certain circumstances, the early and tax-free release of up to $10,000 of your superannuation balance in the period from now to 30 June 2020 and a further $10,000 in the period from 1 July 2020 to 24 September 2020. In what was obviously a slow news day (other than reporting on ‘you know what’) there has been some coverage of a potential ‘sizeable loophole’, ‘scam’, ‘rort’, opportunity to ‘exploit’ this concessional measure and further ‘sting’ an already wounded Treasury. Not sure which superlatives Andrew Bolt or Alan Jones are tossing around (and not sure we care either!). The ANU’s Tax and Transfer Policy Institute has even released a study on it, describing the concept as a manifestation of ‘tax arbitrage’.
While this may have some ears pricking up to spot a potential pot at the end of the rainbow, in reality this isn’t available to everyone and is aimed at a quite specific target demographic. As of 31 March, to apply for this stimulus measure according to the ATO you must:
- Be unemployed; or
- Be eligible to receive a JobSeeker payment (at this stage there is no mention of JobKeeper payments as such, largely because there is no legislation on this yet); or
- On or after 1 January 2020:
- Have had your role made redundant; or
- Be working hours reduced by 20% or more; or
- If a sole trader, have suspended your business or have had a reduction in turnover of 20% or more.
You are entitled to self-certify as to one or more of the above.
So, if you can step into the gift shop what do you get:
- Tax-free withdrawal of up to $10,000 x 2, as noted above;
- You can use these funds to make a concessional (deductible) contribution back into super, so long as the total of your employer contributions and your personal concessional contributions does not exceed $25,000 in each of the two financial years;
- The contribution will be taxed at 15% in the hands of the fund, while you will save tax at your marginal tax rate. The maximum saving available is therefore $3,200 in each of the two financial years (being $10,000 x 47% less 15%), however, if you have had no employer super or you are unemployed then, in many cases, your marginal tax rate will be much lower.
What are you potentially risking (general advice only, and you should seek specific advice from a licensed financial planner or your super fund directly):
- Cashing in some of your super when investment markets are low;
- ‘Stuffing up’ and contributing too much such that you become liable for Excess Contributions Tax;
- If the money doesn’t go back into super, you will miss the long-term future returns and growth (yes, one day…), potentially impacting on your retirement nest-egg;
- Your life, TPD and income protection insurance cover inside the fund, as insurance may not continue to be available for accounts that are fully withdrawn or have a balance below $6,000 (check with your fund).
It’s human nature to seriously consider doing something just ‘because you can’ and it’s always worth considering all available options when some people can genuinely benefit, so if you think the above criteria might apply then let’s discuss it and see what the potential tax implications are for you. Or, speak to your financial planner about the other financial and investment considerations involved.
Please contact us at any time.