Much has been written about the ability of individuals to access a portion of their superannuation - but what must the SMSF trustee consider before paying benefits?

This paper looks at the eligibility of individuals to access their superannuation, the process to do so and the issues which SMSF trustees should consider.

Temporary Early Release

The Government is allowing individuals affected by the COVID-19 pandemic to access up to $10,000.00 of their superannuation benefits in the 2019/20 financial year and up to a further $10,000 in the 2020/21 financial year.

Eligibility

As the release of the benefits is not automatic, application must be made for the release of the benefits. To be eligible to apply for early release of superannuation benefits, an individual must have suffered adverse economic effects as a result of COVID-19.

An individual’s entitlement to apply for early release of superannuation benefits is detailed in a new addition to the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations), at reg 6.19B.

Effectively, the member will be eligible to apply if they:

• are unemployed; or
• are eligible to receive from Centrelink:
  • jobseeker payment
  • parenting payment;
  • special benefit;
  • youth allowance (unless a full time student or new apprentice);
  • farm household allowance; or
• on or after 1 January 2020:
  • were made redundant, or
  • had their working hours reduced by 20% or more; or
  • being a sole trader, suffered:
    • a business suspension; or
    • a reduction in turnover of 20% or more.

A member may make 2 applications for early release of superannuation benefits, each for a maximum of $10,000.00 as follows:

• one in the financial year to 30 June 2020; and
• one in the 2020/21 financial year although the application must be made before 24 September 2020.

Application Process

To apply for the early release of their superannuation benefits, whether as a member of an SMSF or a Public Offer Fund, the member is required to complete an application to the Australian Taxation Office (ATO) through their myGov account.

Determination

Once received, the ATO will consider the application and, if approved, will provide a ‘determination’ to the member, confirming the authority to access the benefits, and the amount approved for release.

If the member’s benefits are with a Public Offer Fund, a copy of the determination will be sent to that fund, as well as an authority from the member to release the approved amount. However, if the member’s benefits are held by their SMSF, the ATO determination will be sent only to the member, who should then provide that to the trustee.

Action of the SMSF Trustee

The SMSF trustee should not act until it receives the ATO determination.

As with most trustee actions being contemplated, the trust deed should be reviewed to ensure it contains sufficient power for the trustee to make the payment(s).

In this instance, it is not a matter of whether or not the trustee will act - the ATO determination is a direction to the SMSF trustee, meaning that if the action is not authorised under the trust deed, the deed should be amended by the trustee to ensure it has the necessary authority, in addition to the ATO determination, to pay the benefit.

The Process

Effectively, the standard process is:

• the member provides the ATO determination to the SMSF trustee; and
• the trustee makes payment of the authorised amount.

However, as with most benefit payments, documentation is an important component of the process. Other than the ATO determination and a trust deed which empowers the payment, it is important the trustee has a documentation trail confirming the transaction, including:

• correspondence from the member to the trustee providing:
  • the ATO determination; and
  • their bank account details;
• a resolution of the trustee noting the ATO determination and resolving to pay the authorised amount to the member’s nominated bank account; and
• correspondence from the trustee to the member confirming the payment.

Topdocs provides a range of documents, including those mentioned above, for payment of the authorised early release of benefits which we have determined to provide free of charge to advisors and their clients.

Waiting for the ATO determination

A benefit of an SMSF is that it is controlled by the members, in their capacity as trustees or directors of the trustee of the fund.

In the instance of accessing benefits, care needs to be taken not to access benefits before authorised to do so.

In regard to a member accessing benefits under the early access to superannuation provisions, it is very important to note that the trustee must not release benefits until they have received a copy of the ATO determination.

Benefits to be Released

If an SMSF holds unrestricted non-preserved benefits for a member, the member may access those benefits at any time, so authority is not required to access that portion of their benefits.

The authority will, however, be required to access their preserved and restricted non-preserved benefits.

Transition to Retirement Income Stream

Member benefits held in a Transition to Retirement Income Stream (TRIS) in the accumulation phase (a TRIS in retirement phase will comprise unrestricted non-preserved benefits) can be accessed under the early access to superannuation provisions.

Whilst the permitted benefit would be in addition to the maximum 10% income stream payment permitted, for the amount to be paid under the early release provisions the amount would need to be commuted from the TRIS to the accumulation account, and then paid to the member.

Otherwise, there is a risk that the pension standards could be breached through the payment in excess of 10% of the TRIS balance.

Conclusion

Although quite a simple process, the early access to superannuation provisions do contain some traps. In particular:

• the trustee should wait for the ATO determination before paying the claimed benefit;
• a determination is not required for benefits in retirement phase (or unrestricted non-preserved benefits in accumulation phase);
• if the benefits are from a TRIS in accumulation phase, a partial commutation to the accumulation account should take place first;
• the SMSF trust deed should permit the payment to be made; and
• the interactions between the member and trustee regarding the early access to superannuation should be documented.

The Topdocs early access to superannuation package provides a full documentation trail for the release of the authorised amount of benefits.

COVID-19 Early Access to Superannuation – SMSF Trustee Considerations