SMSF Release on Compassionate Grounds

Access your Super | Early Release of Superannuation on Compassionate Grounds 

SMSF Release on Compassionate GroundsSometimes personal situations become desperate, and you would like to access the super monies trapped in your Fund. Access to part of your super under ATO compassionate grounds is one of the ways to tap into your super savings. Please note that compassionate grounds are different to financial hardship and from experiencing a terminal medical condition which are also grounds for early access to your super.

Before you apply for compassionate release consider if there are other alternatives to access your super early which may be less onerous to use. An example may be accessing a “transition to retirement pension” or verifying if you are “retired” so you can access your super directly. This paper does not consider the alternatives as it is dependent on each member’s specific situation.

The information provided is a guide only and a request to release super early should only be considered after consultation with your SMSF Accountant or your Licensed Financial Adviser.

What is Early Release of Super on Compassionate Grounds?

Your super is locked away until you have met a condition of release which allows you to be able to access the funds. The most common condition of release is turning 65 and thus achieving what is known as pension age (note this is different than the Centrelink definition of pension age). One of the other ways you may be able to access super is know as compassionate grounds. Under specific circumstances you can pay for certain types of expenses from your super fund. The circumstances are limited and but may extend to you or your dependents. 

Refer to the ATO website for further details about conditions of release.

Conditions of release | Australian Taxation Office (ato.gov.au)

Tip – A dependant can include your spouse or child as well as a person you have an interdependent relationship with or is financially dependant on you. Most family situations with Mum and Dad and two children usually fit within the definition of a dependant. The Super rules can be complicated, so it is critical to consult with your SMSF Accountant or Licensed Financial Adviser to ensure the person you want to help is a dependant.

Who Can Authorise the Release on Compassionate Grounds?

The tax office must authorise the claim for release before it can be paid to you from your super account. If you are with an industry or retail superannuation fund you need to go directly to your super fund and through their processes to release your super. When you are attempting to access super on compassionate grounds via an SMSF we need to submit your application directly to the tax office explaining the situation. 

What can I pay for from my Super?

Only expenses which have not been paid. You cannot claim for reimbursement of an expense. Expenses can be paid where there are no other payment options available to you. The expenses exclude Medicare or other health insurer rebates.

Expenses that can be paid include:

  • Acute, chronic or life-threatening medical treatment which is not generally available through the public health system.
  • Medical transport to attend medical treatment for acute, chronic or life-threatening medical treatment.
  • A modification to your home or vehicle to accommodate needs arising from a severe disability.
  • Palliative care for a terminal illness.
  • Death, funeral or burial expenses for your dependant.
  • Preventing foreclosure or forced sale of your home.

 

Warning – the above expenses are subject to specific criteria which must be met to support an application to have the expense paid by your Fund. Consult your SMSF Accountant or Licensed Financial Adviser prior to requesting ATO compassionate grounds release of superannuation. 

What are the Eligibility Criteria to Access Super?

The eligibility criteria include the following:

  • Resident of Australia or New Zealand.
  • There are specific criteria for each expense category you need to provide.
  • The expense is unpaid including unpaid borrowings used to pay for an expense.
  • You have no other means to pay the expense such as savings, shares or other assets.
  • Provide the required supporting documents such as invoices, medical reports from two registered medical practitioners or other evidence as required.
  • Provide evidence that the expense related to a dependant, if applicable.

A couple of examples are as follows:

 

Example 1 – Fred used his credit card to pay for an emergency ambulance to take Wilma, his wife, to the hospital to be treated for acute appendicitis. Fred is out of work, has no savings or relatives to help him pay his credit card. The bank is considering legal action. Fred can make a request to the ATO to have the unpaid amount relating to the medical transport paid from his Fund. Of course, Fred must have a sufficient balance in his self-managed super fund to cover the unpaid amount and include all the documents required and complete the application correctly.

It is possible for a borrowing to be an eligible expense. The expense is the unpaid borrowing and not the original expense it related to. Refer to example 1 above, the original expense related to medical transport. If the facts were different and Fred used his credit card but was able to pay his credit card when it was due or make instalments the credit card payment would not have been an eligible expense.

Example 2 – The bank gives notice it is going to repossess your home due to arrears in loan repayments. The maximum amount that can be released via an application for compassionate release is 3 months of repayments plus 12 months interest on the outstanding balance of your loan. This can only be accessed within a one-year period. You have no other means to pay for the mortgage arrears and at risk of losing your home.

The property must be your home. It cannot be a dependant’s home or mortgage. The lender must agree in writing to a repayment schedule. The ATO will not release any of your super if the amount in super does not cover the agreed amount to be repaid to the lender. Your Fund must allow early access so check your SMSF deed prior to seeking to release funds. 

If your monthly repayments were $2,500- and 12-months interest on your loan was $20,000. The maximum amount of the request is 3 x $2,500 + $20,000 = $27,500.

How do I Apply for Early Release on Compassionate Grounds?

  • Applications for the compassionate release go to the tax office via your MyGov account or ATO online services.
  • Alternatively call the ATO to obtain an ATO paper form.
  • Online applications are processed quicker than paper applications which can take up to 28 days to process.
  • On a successful application the ATO will send you a confirmation letter of the amount to be released.
  • Your Fund is unable to release the monies until it has received the confirmation letter which can only be used to release one super lump sum payment.
  • Your Fund will deduct any applicable personal tax before releasing the super monies to you and provide you with a payment summary.
  • You must pay the expenses which were approved by the ATO.
  • Your SMSF Accountant or financial planner can assist you with the process.

Ensure the following is checked off before making an application:

  • Check if you have sufficient money in your super account to cover the amount of the request. Check if there is any super due to be deposited in the near future from your employer or other source that could increase your super benefits to the required amount.
  • Work through the eligibility criteria to access super early under compassionate grounds and confirm you are eligible.
  • Check your SMSF deed allows early access to super under your specific compassionate ground.
  • Ensure you have the required evidence to support your request and include it in a letter to your super fund for the SMSF to keep on file.
  • Have you got evidence of a “dependant” relationship when requesting expenses for somebody else?

Evidence required to apply for your super

There are specific documents required, in relation to each type of expense, as evidence before the ATO will accept your application to release super monies early on compassionate grounds. Check what the specific requirements are with your SMSF Accountant or Licensed Financial Adviser. Generally, medical reports, detailed invoices, loan statements, loan agreements and evidence of a dependant relationship may be required.

Here are a couple examples of evidence required:

Example 1 – Surgery for Medical Condition 

Jackson compassionate release of super for medical treatment, in this case to pay for a hip replacement.

The surgeon required Jackson to attend a private hospital to do the surgery. There was an exceedingly long waiting list to get into a public hospital and the surgeon was concerned about the deterioration in Jackson’s ability to walk. The condition was causing chronic pain.

✓       The surgeon and a general practitioner certified the treatment was necessary and not readily available in the public health system and have completed the ATO’s report “Compassionate release of Superannuation – Report by registered medical practitioner”. Both reports were signed and dated 1 month before Jackson makes an application for compassionate release.

✓       Jackson provided detailed invoices in relation to the surgery and provided evidence of details for Medicare and private health benefit rebates he received. The invoices were on the letterhead of the hospital and surgeon. The invoices were dated, less than 30 days old and unpaid.

✓       Jackson is unemployed and has no savings, no shares or other assets. He had no ability to pay for the medical expenses which were not rebated by Medicare or his private health fund. Jackson provided evidence from Centrelink about his employment status and copies of his bank statements and a declaration saying he had no other assets or other options available to pay the medical expenses.

Note: If instead Jackson borrowed from his local bank to pay the medical expenses but was unable to continue making the repayments he can request  compassionate release of super in relation to the borrowings. In this case the additional evidence required is as follows:

  • All the above evidence is required but the original invoices now have no time limit imposed.
  • Receipts to show the payment of the eligible medical expenses (net of any rebates) to show the date, amount paid and the method of payment.
  • A copy of the loan document and loan statements.
  • A declaration from Jackson showing details of the loan, reasons for the loan, amount of the loan which is outstanding and unable to be paid by Jackson, details of why Jackson is not able to continue to make the loan repayments and details of other options considered but rejected.

The request for either scenario should be granted as the evidence provided fully supported the application.

Example 2 – Palliative care for a terminal illness

Jenny requests compassionate release of super to pay for her husband’s (Allan) end of life care as he has bowel cancer. Allan was given 12 months to live but his condition deteriorated and is now in the palliative care unit of the local hospital.

✓       Allan’s oncologist and his general practitioner certified the palliative care at the local hospital was necessary and Allan was not expected to live more than 12 months. Both doctors completed the ATO’s report “Compassionate release of Superannuation – Report by registered medical practitioner”. Both reports were signed and dated 1 month before Jenny submitted her request for compassionate release.

✓       Jenny provided detailed invoices in relation to the palliative care and provided evidence of details for Medicare and private health benefit rebates received. The invoices were on the letterhead of the hospital and the visiting doctors. The invoices were dated, less than 30 days old and unpaid.

✓       Allan lost his job when he became ill, and Jenny reduced her fulltime work to part time so she can be with Allan as much as possible. The couple have no savings, no shares or other assets as they expended what money they had when looking for a solution to his illness. Jenny provided a statement declaring her inability to pay for the palliative care after allowing for any rebates from Medicare or their private medical fund.

The request can be granted as the evidence provided fully supported the application.

What are the Tax Implications and Impact on your Super Balance?

You are subject to personal tax on the release of monies approved by the ATO on compassionate grounds. Your Fund must withhold the tax before releasing the super monies to you. The payment to you is a superannuation lump sum payment.

Generally, if you are over 60, the superannuation lump sum payment is tax free.

Generally, up to age 60, tax of between 17% and 22% (including Medicare) applies. Further tax breaks may apply to members in the age bracket between 55 and 60 which can reduce tax to a lesser amount, or possibly nil.

In relation to all ages no tax is paid on the “tax free” (contributions made from after tax dollars) component of your member balance. In the unlikely situation you have an “untaxed” component higher tax rates apply.

Your SMSF adviser can let you know what your underlying tax components are and the likely tax on your superannuation lump sum payment.

Apart from tax implications, consider how the withdrawal impacts your retirement benefits. A significant withdrawal from super can impact on your retirement benefits. The missed earnings compound over a long period of time resulting in less money available when you decide to stop working. Other considerations should be given to the impact on your family tax benefits and child support payments.

Compassionate Release of Superannuation – Key Takeaways

  • Look for other options to access your super early, if possible.
  • Compassionate grounds are available as a last-minute financial survival mechanism where there is no other alternative.
  • Consider the impact on your retirement if you access your super early.
  • Consider the tax implications.
  • Provide the evidence required in relation to the specific expense claimed.
  • Check in with your SMSF Accountant or Licensed Financial Adviser.

Do you want to learn more about SMSF Compassionate Release?

Give us a call on 1300 392 544 or get in touch online.

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If you’re interested in learning more about SMSF Compassionate Release? Please reach out for a confidential quote. Simply submit your details and one of our friendly team will be in touch as soon as possible.

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Do you want to learn more about SMSF Compassionate Release?

Give us a call on 1300 392 544 or fill in the form above

Contact Us

If you’re interested in learning more about SMSF Compassionate Release? Please reach out for a confidential quote. Simply submit your details and one of our friendly team will be in touch as soon as possible.

Contact Us

Name(Required)