Floods, financial difficulty & early access to superannuation

Australians affected by recent floods in Queensland, Northern New South Wales and parts of Victoria, may seek to gain early access to their superannuation. Today we discuss how the relevant condition of release operates, eligibility, and any taxation consequences.

There are two relevant superannuation early release conditions; severe financial hardship and compassionate grounds - each with different eligibility criteria and other rules. In addition, a person who has reached age 55 but not yet retired may be eligible to use their superannuation benefits to start a transition to retirement pension and take a maximum income payment of 10% of the account balance in each financial year.

Severe financial hardship for early superannuation release

There are two tests for severe financial hardship, assessed by the relevant superannuation fund trustee.

Test 1 - any age

• Based on written evidence provided by a Commonwealth department or agency (e.g. Centrelink) the person has received Commonwealth income support payments (1) for a continuous period of at least 26 weeks and was in receipt of those payments at the time of application, and
• The person is unable to meet reasonable and immediate family living expenses (2)

The amount that may be released from superannuation under Test 1 in each 12 month period must be a single lump sum not less than $1,000 (3) and not more than $10,000.

Test 2 - from age 55 + 39 weeks

• Based on written evidence provided by a Commonwealth department or agency (e.g. Centrelink) the person has received Commonwealth income support payments for a cumulative period of at least 39 weeks after reaching preservation age, and
• The person is not gainfully employed either part-time or full-time on the date of the application.

There are no restrictions on the amount that may be released from superannuation under Test 2.

Compassionate grounds for early superannuation release

The Department of Human Services (DHS) is responsible for processing claims for the Early Release of Superannuation on Specified Compassionate Grounds (4).

Specified compassionate grounds allow for the early release of superannuation benefits where you nee money to:

• Pay for medical treatment or dental treatment for yourself or a dependant.
• Pay for transport to medical or dental treatment for yourself or a dependant.
• Prevent your home being sold by the lender that has the mortgage for it.
• modify your home or vehicle to accommodate your own needs, or the needs of a dependant, in the case of severe disability
• Pay for palliative care for a person with a terminal medical condition, yourself or a dependant.
• Pay for expenses associated with a dependant's death, funeral or burial

Early release of Superannuation Benefits on Compassionate Grounds is only available to Australian and New Zealand citizens and permanent residents.

For more information to apply for the early release of your superannuation benefits on Specified Compassionate Grounds please visit www.humanservices.gov.au.

Taxation implications

While superannuation law determines whether a person may be able to have early access to their superannuation, the payment made may be subject to taxation, as shown in Table 1. Any tax payable will reduce the net amount to the client.

Table 1

Note: For all non-zero tax rates, Medicare levy may also apply. Tax free component is always tax free.

References:
1. Including Age Pension, Newstart Allowance, Partner's Allowance and Disability Support Pension, but excluding Youth Allowance and Austudy payments.
2. This is assessed by the fund trustee, taking into account APRA guidelines on what may be considered 'reasonable and immediate family living expenses'.
3. Unless the person's preserved and restricted non-preserved benefits are less than $1,000.4. Australian Government Dept. of Human Services, 2011

Source: CFS 2010

January 2011