- Liquidity crunch amid pandemic has prompted many Australians to access super early.
- Early super access scheme topped with 2.3 million applications by mid-June, and super funds have paid over $15 billion to members.
- The first tranche of the early access scheme is coming to an end by this month, and the second tranche will close on 24 September 2020.
- The Australian Tax Office has given more clarifications on the scheme, warning people trying to access super through fraudulent means to be prepared to face adverse consequences.
Claiming early superannuation fund through fraudulent means is not going to be easy-breezy in Australia with the Australian Tax Office (ATO) keeping a strict vigilance over applications.
Between 20 April 2020 to 14 June 2020, COVID-19 Early Release Scheme have paid $15.9 billion to members and received 2.3 million applications for $16.9 billion, of which 2.1 million applications were paid with an average payment of $7.4k. Around 1.42 million payments were made by ten funds totaling $10.46 billion.
The Australian Tax Office (ATO) has warned that false practices to access super early will attract fines and tax liability. It intends to act against the people who are deliberately exploiting the early access scheme.
Early super access scheme was for the citizens of Australian and New Zealand who have experienced a 20% reduction in working hours or have become unemployed, or is eligible to receive payments such as Jobseeker payment, parenting payment, special benefit. A sole trader must experience a 20% drop in turnover to become eligible.
The scheme allows members to withdraw $10k in the year 2019-20 before 30 June 2020, and other $10k in the year 2020-21 starting from 1 July 2020 to 24 September 2020.
ATO has come across instances where members were indulged in false practices and has rejected the applications in some cases. It also reviews the applications after they are processed to ensure its approval is in full compliance.
ATO used data sources to check discrepancy of claims including third party data from agencies such as Services Australia, Home Affairs, super funds, income tax returns and single touch payroll (STP). Using STP, the tax authority can check employment and wages of a person.
ATO will ensure that members have not exploited the early super access scheme, and discrepancies in its checks will lead to a review. Applications which show no salary change or status of employment will be considered for review. Also, applications where members were seeking early access by becoming eligible through artificial means or by submitting fraudulent statements or withdrawing and re-contributing super to seek tax benefits will also be up for reviewing.
When a member, who was not eligible for the early access scheme, has applied for the scheme, the tax authority will act against the member. ATO will also ask for evidence with respect to eligibility and inability to furnish the evidence will lead to a null application.
As a result, the funds received through the early scheme will become taxable and included in taxable income. If an applicant provides misleading information, penalties in order of over $12k could be imposed by the authority.
Members who are withdrawing and recontributing funds for deduction benefits could be exposed to a range of tax outcomes. This could lead to excess contribution tax, contribution tax, division 293 tax, and impact eligibility for super co-contribution.
If the tax authority finds that member has accessed scheme for the purpose of tax benefits, it could also invoke Part IVA, the general anti-avoidance rule for income tax. The enforcement of Part IVA will lead to cancellation of tax benefit, while interest charges and administrative penalties could be imposed.
Industry Super Australia raised the alarm
In April, An Industry Super Australia commissioned survey revealed that about a million Australians intend to access super who have not been impacted due to coronavirus and around 40% of the applicants could be ineligible to access the scheme. Of those 40% respondents who were ineligible for the scheme, around 47% of people were in a full time job with no changes in working hours. The survey further revealed that around 26% of the respondents were inclined to take up the scheme with an average withdrawal of $13.5k.
Young generation have been withdrawing super
Data from Treasury suggests that younger Australians have been at the forefront when it comes to accessing super early. Majority of the claims were applied by the Australians who are younger than 35 years old.
People in younger age groups are generally engaged in part time work, while they continue their education. And, the early super access scheme has provided such individuals with lifeline support to pay the bills when they are unemployed.
Given that the young generation has a long contribution period pending, the lost amount could be made up by such individuals. Experts anticipated such sort of rush from younger Australian due to lower savings and casual jobs.
Some said younger Australians are largely employed in sectors that were hit hardest by the pandemic, including retail and hospitality. But the young generation should access super funds only when it is the last resort.
Accessing super early seems attractive in the short term to meet the ends without any additional debt, but a super member should consider the impact on the long term benefits of the super funds, which will be crucial during the retirement.
Scammers have also pitched in
Reports also emerged that Australians have scammed in the name of the early access scheme. Scammers have set up fake government websites to lure Australians who are looking to access super and browsing internet.
Victims point to the flaws in the scheme due to lackluster security checks and identity verification process. The Government also paused withdrawals after the tax authority revealed that scammers infiltered systems.
In COVID-19 pandemic, many Australians are accessing their super before retirement. However, while claiming super early leads to liquidity in hand in short term, in long run, an individual loses out on interest which could have been compounded over a number of years, leading to a lump sum amount at retirement. Provision of accessing super amid pandemic has prompted many Australians to access super through fraudulent means. Australian Tax Office (ATO) is keeping a strict vigilance over applications with stringent review process to maintain a fair system.