SMSF Conditions of Relase

Access my Super with a Condition of Release for Superannuation Benefit Purposes  

SMSF Conditions of ReleaseAccessing SMSF funds prior to reaching preservation age is a complicated subject with a great deal of ATO attention. The ATO works to ensure your retirement savings are safeguarded and preserved until you meet certain requirements to be able to withdraw them. 

Super laws aim to encourage individuals to save for retirement, thereby reducing reliance on government assistance. Protections are in place to prevent early access to superannuation funds before meeting a condition of release, such as reaching the age of 65 which is the most common SMSF condition of release for super. 

Before any lump sum or income stream benefits can be paid out, the trustee of the fund must verify that you have met the necessary condition of release as outlined in the fund’s trust deed and superannuation legislation and regulations.

Failure to provide adequate documentation proving that you have fulfilled the condition of release may lead to the payment being considered illegal early access to your super. The Australian Taxation Office (ATO) may then adjust your tax return to include the payment and tax you at your marginal tax rate. Furthermore, you may be required to resign as a trustee, resulting in the transfer of your super benefits to another compliant super fund.

When can you Access your Super?

If your benefits are labeled as unrestricted non-preserved then they generally may be released and you are able to freely access your superannuation. However, in other cases, accessing your super may only be permitted in specific situations where a super condition of release is met, with limitations on how the benefits can be withdrawn.  Your member statement visible from your accountant for an SMSF or via your super account portal for an industry fund should provide you with the classification of your super benefits to check if any are unrestricted. 

To understand when you can access your benefits you need to know what preserved and unrestricted benefits are. There is another category being restricted non-preserved benefit which is relatively rare.

Preserved benefits mean your superannuation benefits are not accessible until you satisfy a condition of release, or special rules may allow restricted access.

Restricted non-preserved (Restricted) benefits resulted from benefits accrued if you were a member of a complying superannuation fund before 1 July 1999. Generally, these were your employer related contributions (excludes employer contributions) which can become unrestricted after you leave that employer you had at the time you accrued the benefits or when you satisfy a condition of release.

Unrestricted non-preserved (Unrestricted) benefits mean you have complete access to withdraw money from your super fund at any time in any format. There are no cashing restrictions.

Future Earnings and Contributions Are Preserved Benefits in the Fund 

Once a condition of release is satisfied, you are able to access your super as it becomes unrestricted. However, any additional earnings or future super contributions you make are preserved in the fund until another condition of release is met. 

There are certain exceptions, such as when you are 65 years old or older, or when you are permanently incapacitated. In these cases, future earnings and contributions continue to be unrestricted. Additionally, if you start receiving a pension (excluding a Transition to Retirement income stream), special rules apply enabling the growth of the pension to reflect its unrestricted status.

Key Conditions of Release for Superannuation

The primary super release conditions include:

  • Attaining age 65
  • Passing away
  • Reaching your preservation age and retiring from gainful employment (not relevant after 1 July 2024)
  • Retiring by terminating an employment agreement at or after the age of 60 known as the retirement condition of release

All your benefits are automatically unrestricted and accessible when any of the above conditions are satisfied.

Now, let’s explore the definition of retirement, consider preservation age, and what gainful employment means, all of which are crucial factors to consider when you satisfy the condition of retirement.

What is Retirement?

This seems simple but it isn’t necessarily.  Generally, it is leaving a job to cease working.  The super law adds complexity around what retirement is which depends on preservation age and ending gainful employment.

Since the preservation age will be 60 for all individuals starting from 1 July 2024, we have excluded further discussions on the requirement for a member to reach their preservation age and retire from gainful employment in order to access their benefits.

Retirement for a Member who is 60 or over

  1. an arrangement under which the member was gainfully employed has ended on or after they turned 60; or
  2. the trustee is reasonably satisfied that the member does not intend to become gainfully employed again for 10 or more hours per week. 

What is the significance of this? A member has two options for meeting the retirement criteria. They can choose to cease working once they reach the age of 60. If the member is not working or works less than 10 hours a week, they will not meet this requirement. However, If the member does genuinely intend not to be employed in the future, they can still satisfy the retirement criteria. 

Preservation age requirements

Preservation age is 60 from 1 July 2024.

Prior to this there was a scale varying the preservation age from 55 to 60 which was dependent on your date of birth.  However, it is no longer relevant after 1 July as everybody born before 1 July 1964 will be 60 or older.

Except for benefits which are subject to special circumstances your super is locked away until at the very least you reach preservation age.

What is Gainful Employment?

Gainful Employment is being employed or self-employed for gain or reward and can include wages, business income and bonuses. Babysitting, charity work or voluntary work will not normally be regarded as gainful employment.

Passive income such as dividends, interest or trust distributions will not generally be considered as gain or reward as it is not a direct result of a member’s physical or mental exertion in relation to a task or service rendered. However, in some circumstances it is possible that dividends or trust distributions paid to a key shareholder or unitholder for significant duties being performed could be considered as gainful employment. The ATO particularly look to see if the business would remain operational or as profitable if the member did not perform those duties. 

If you have not been gainfully employed, you cannot retire. Therefore, you may have to wait until turning 65 to access super benefits. 

Must you draw on your Super when you meet a Condition of Release?

Must you draw on your superannuation when you meet a condition of release if you don’t want to?

No, you are not required to access your super while you are alive.  However, upon your death, your benefits will be subject to “compulsory cashing,” meaning that a decision must be made regarding what should be done with your member benefits. There are various options for how these benefits can be paid out, which we will not discuss in this article.

Nevertheless, it is important to review your trust deed which outlines the guidelines for running and overseeing your self-managed superannuation fund. It is advisable to review your trust deed because older deeds may mandate the withdrawal of your superannuation upon meeting a condition for release, even though it is not required by superannuation laws. Additional rules can be enforced in a trust deed as long if they do not contradict the superannuation legislation and regulations. It is recommended to talk to your SMSF Accountant or Licensed Financial Adviser about this matter.

Special Circumstances to Access Your Superannuation Early

Apart from key conditions of release there are a number of special circumstances where you may be able to access your preserved super balance. 

Early release of super eligibility

A member can access early release of super if they are eligible. The criteria depend on the condition of release being sought and subject to restrictions on how the benefit can be cashed. 

If a member satisfies more than one special condition of release, they can apply using the condition which is more suitable for their individual circumstances.

Transition to Retirement Pension (TRIS)

A Transition to Retirement Income Stream (TRIS) is like an account-based pension but comes with certain restrictions. It counts as a condition of release superannuation benefits and is tax-free for members over the age of 60. A TRIS does not count towards the individual’s transfer balance cap (TBC), which is the maximum amount of super benefits allowed in pension phase. Tax continues to be applied to the TRIS earnings, at the fund level, Starting from July 1, 2024, when the preservation age will be 60 for everyone, a TRIS typically apply to a member who is still working after turning 60 but prior to reaching 65.

Tip – When you reach 65, your TRIS will automatically convert to a retirement phase income stream.  When in retirement phase a pension is counted towards your TBC. It is advisable to plan ahead before your birthday to avoid exceeding your Transfer Balance Cap and to fulfill reporting requirements.

Severe financial hardship

To satisfy the severe financial hardship condition of release you must be unable to pay for basic reasonable living expenses which are in arrears such as rent arrears or overdue mortgage repayments. Application is made to the Trustee of your SMSF. Generally, no tax applies if you are over 60. If under 60 tax can vary from nil to 22% depending on the underlying tax components (excluding untaxed elements).

Any Age

A payment between $1,000 and up to $10,000 is allowed if certain criteria are met. Essentially you must have been receiving eligible government income support payments from Services Australia, such as Centrelink, for a continuous period of at least 26 weeks prior to accessing your preserved benefits.

Reached Preservation Age (60 from 1 July 2024) Plus 39 weeks

No limit on access to preserved benefits. You must have been receiving eligible government income support payments from Services Australia, such as Centrelink, for at least 39 consecutive weeks and you don’t have a job at the time of application.

Terminal medical condition

If the member has a terminal medical condition where two medical practitioners must certify that the member suffers from an illness, or has incurred an injury, that is likely to result in the death of that member within the next 24 months there is no restriction on the amount of preserved benefits that can be accessed. In this case the fund may payout the superannuation early without a fund condition of release to be met.  The trustee will determine if a member has satisfied the conditions required but in the case of SMSFs we generally advise working with your SMSF accountant to ensure all the paperwork is in order to meet the conditions of release to access your super. 

Benefits can be paid as a lump sum benefit or as a pension.  Super lump sums are tax free whilst pension payments are only taxed if under 60.

Permanent incapacity benefits

A member can access their preserved benefits If ceasing gainful employment and the trustee is satisfied that they are unlikely, because of illness or injury (whether physical or mental), to engage in gainful employment that they are reasonably qualified by education, training or experience.

No tax applies to a benefit paid to a member over 60.

If a member is under 60 (under preservation age from 1 July 2024) a lump sum is regarded as a “disability superannuation benefit” and a special uplift to the tax free component may be available which can reduce tax payable. Whilst a pension is taxed as usual, based on the tax free and taxable components) an entitlement to a 15% tax offset (non-refundable) is available.

Tip – The member should obtain two medical certificates from registered medical practitioners to support permanent incapacity for audit purposes.  It is not specifically required but highly recommended to ensure we are able to prove to the ATO and auditor that the condition constitutes permanent incapacity under the SIS Act and SIS Regulations. 

Temporary Incapacity benefits 

The member cannot be permanently incapacitated but must have ceased working temporarily due to physical or mental ill health. This condition of release allows insurance benefits to be released from the fund. Payment must be in the form of a non-commutable pension paid monthly which cannot exceed the duration of the member’s ill health.

The application must be made to the trustee of the fund and is taxed as normal assessable income and not as concessionally taxed superannuation pension payments.

Releasing super on compassionate grounds

The ATO must authorise the payment on compassionate grounds before the trustee of your SMSF is able to pay the benefit to you.

Examples of compassionate grounds include paying for medical treatment, medical transport, palliative care, funeral expenses for your dependent or preventing foreclosure or forced sale of your home.  There are strict criteria for each type of expense allowed to be paid from the fund and the paperwork burden is quite substantial. 

Talk to your SMSF accountant or Licensed Financial Adviser to ensure you satisfy the criteria and have the evidence required to make an application to the ATO.

The payment made on compassionate grounds is taxed as a normal superannuation lump sum.  No tax on payments made if you are over 60. If under 60 tax can vary from nil to 22% depending on the underlying tax components (excluding untaxed elements).

Utilising the first home super saver scheme

The first home super saver (FHSS) scheme was established to encourage members to save a deposit for their first home.  The members can make voluntary concessional and non-concessional contributions to the fund after 1 July 2017 up to a maximum of $50,000 in total.  

The ATO assess what can be released based on the member’s application and will withhold an appropriate amount of tax. Any outstanding tax or Commonwealth debts will be offset against the FHSS release amount before being paid to the member. Tax is payable by the member on any concessional contributions and associated earnings. They are taxed at the individual’s marginal tax rate less a non-refundable 30% FHSS tax offset. 

Release authorities

A member can access their super benefits to pay an ATO release authority in relation to payment of excess contributions, a Division 293 tax assessment (surcharge tax on concessional contributions) or a FHSS scheme payment. The amount released is non-assessable non-exempt income (not reportable) to the member.

Generally, when paying a superannuation benefit the payment is made on a proportional basis in relation to the underlying tax components to avoid cherry picking. However, under a release authority the proportioning rules do not apply which means super benefits can be withdrawn 100% from the taxable component maximising the tax free component. The payment must be made against the unrestricted super component before the offsetting against preserved components.

Frequently asked Questions?

Question 1

I turned 60 recently and am continuing to work full time but I want to access my super.  How can I do this?

At the moment you are limited in your eligibility to access your super benefits. You do not meet the definition of retirement as you have not ceased working after you turned 60. You continue to work and therefore the trustee could not accept that you have the intention of not working in the future. However, you can consider a Transition to Retirement Pension.

Question 2

When can I access my super as I am 61 and have not been employed since my early twenties?

You can access your super now if you do not intend to be gainfully employed in the future.  

Question 3

I am a 60 year old self-employed contractor. I am currently in between contracts. Have I satisfied a condition of release.

No.  Your gainful employment involves all your self- employment contracts.  You will satisfy a condition of release when you wind up your business or turn 65.

Is it different if I am an employee on a 3 month contract which ends?

Yes. The contract satisfies the definition of being gainfully employed. As you ceased that arrangement after you turned 60 you satisfy the condition of retirement and all your super benefits at that time can be classified as unrestricted and fully accessible.

Question 4

I am 62 and work at a wine bar two nights a week and work as a hospital administrator during the day. Do I have to stop working both my jobs to access my super as I would like to take a cruise and need access to a large lump sum to do this?

No.  You can cease working one of the jobs, which can be your part time bartender job, to satisfy the condition of retirement. All of your benefits at the time you cease working in the wine bar can be classified as unrestricted and you can withdraw a superannuation lump sum payment to pay for your cruise.  As you are over 60 no tax will apply.

Key Takeaways

  • Unfettered access to super when you turn 65 
  • Death automatically transfers benefits to being unrestricted
  • Access super on retirement
  • Understand when benefits are preserved vs unrestricted 
  • Preservation age for everybody is 60 from 1 July 2024
  • Access to preserved benefits is available under certain conditions
  • Important to understand what gainful employment is and when it ceases

Other Types of Assets

An INHA can be acquired by the Fund and contributed as a member contribution provided it does not exceed the 5% limit on INHA owned by the Fund at the time of purchase. The Fund cannot acquire an asset from a member unless it comes within one of the exceptions or it is an INHA. The Fund cannot acquire shares from a member when those shares are owned in an unrelated company. This doesn’t appear logical as the Fund can directly acquire shares in an unrelated company but if acquiring the unrelated shares from a member it is prohibited.

5% in-house asset limit (INHA)– A fund can only acquire an INHA if the existing INHA assets and the INHA to be purchased do not exceed 5% of the fund’s assets at the time of purchase. The In house assets rules are very complex and have a material effect on purchasing assets into your SMSF when connected with one of the members or their associates. 

TIP – Assets that cannot be acquired directly from a member include a loan to a member or a relative of a member.

A residential swelling owned by the member is unable to be transferred to the Fund unless it is being used for business purposes ie the property is held as part of a land developer’s business. It may be possible to transfer a residential dwelling subject to the 5% in-house asset limit BUT in most cases the Fund would exceed the limit prohibiting the acquisition.

A Fund cannot acquire shares from a member when the shares are from an unrelated company (the unrelated shares do not fit within one of the exceptions allowed under the Super Rules). Interestingly, if the shares are in a related company the shares could be purchased subject to the 5% limit for in-house assets.

Transfer of an Asset | Market Value Rules  

It is critical to ensure when you contribute or transfer assets it is allowed by the super rules and also that the asset transferred is valued immediately before it is transferred or contributed to an SMSF. Valuations can easily be obtained for listed securities and for most managed funds but property, and other assets are more problematic.

The market valuation of direct property and underlying property owned by a unit trust or a company receives a lot of attention by the tax office. Remember the in specie asset transfers must always be able to be proved to be at fair value. 

The ATO accept the following as evidence of market valuation for properties:

  • A real estate valuation from RP Data or similar valuation software which includes a couple of comparable sales
  • A recent arms length purchase between unrelated parties
  • A formal written valuation from a qualified valuer

It is important to look through a unit trust or a company which is being acquired to ensure it is valued prior to transferring from a member to the Fund. Underlying property can be valued as per the above but other assets and liabilities of the unit trust/company should be reviewed as well.

In-Specie Contribution vs In-Specie Transfer to your SMSF

An In Specie Contribution is a non cash transaction from the member to the Fund and a non cash purchase of an asset by the Fund.

An In Specie transfer of an asset to the Fund is a non cash transfer of an asset which can be made from a member, trustee, employer or other party to the Fund where cash is paid from the fund to purchase the asset. Of course the asset must be one which the Fund is able to purchase under the super rules.

An In Specie transfer of an asset/s can be made as part of a rollover of benefits from one SMSF to another super fund. Similar to previous discussions the asset must be valued at or near the date of transfer and represent the value of the rollover and is a non cash transaction between the two funds.

The Process of Transferring an Asset from A Member to the Fund

It is important to ensure the title of the asset is transferred from the member to the Fund. The legal title should be transferred to the trustee of the Fund. Where possible the title should also include the designation for the Fund. NSW land titles do not allow the Fund designation on the title but not all states have the same regulations.

Off market transfers are typically used to transfer shares. The form must be prepared correctly in accordance with the appropriate share registry and signed by the member and by the trustee of the Fund and show the number of shares and the date. The market valuation should be the valuation on the date indicated on the off market transfer form. Retain a copy of the form for the auditor.

Transfers of property should be prepared by a qualified solicitor or conveyancer who will assist in changing the title through the appropriate office of state revenue and have the transfer assessed for stamp duty.

To be transparent a request should be prepared by the member identifying what the asset is to be transferred and how the contribution is to be allocated as well as the amount and provide evidence of the market valuation. The trustee is required to have a meeting to table the request and resolve what to do. A confirmation letter should be sent to the member.

A member electing to make a member concessional contribution is required to prepare S290 paperwork which includes a notice of intent to claim a personal tax deduction. The trustee should minute this and send a confirmation letter to the member to acknowledge acceptance of the concessional contribution. Time frames exist to claim the tax deduction and if missed the contribution may be forfeited. Thus it is best to prepare and sign the paperwork on the date the contribution is made.

Other Compliance and Legal Considerations to make an in specie transfer

The following should be considered when thinking of transferring an asset to the Fund:

  • Consider contribution caps for the member. Consider maxing out the contribution caps via the asset purchase by the SMSF being partly treated as a contribution and the remainder using cash or other assets Particularly useful if the market value of a property is more than the available caps. As a reminder the types of contributions are called Non-Concessional which are not tax deductible personally and Concessional Contributions which are and each have their own individual caps under legislation. 
  • Tip The ATO’s view in LCR 2021/2 (ATO Law Companion Ruling) indicates the cash paid and the in specie contribution are 2 different interests in the property which should be shown via 2 separate transfer documents. It is critical to prepare paperwork which recognises the 2 interests to avoid the possibility of the ATO applying NALI (non arms length income) which could result in paying additional tax, at your marginal tax rate, on the income (including capital gains on sale) earned in relation to the property.
  • Total Superannuation Balance should always be considered when a member’s balance is increased.
  • Stamp Duty is required to be assessed and may be payable on transferring property assets into an SMSF.
  • GST to be reviewed as the Fund may need to be registered. An exemption may be available in relation to transfer of a property.
  • Land tax to be reviewed in relation to property transfers.
  • Consider the asset being transferred will be retained in the Fund until your preservation age and you satisfy a condition of release ie turning 65 is a condition of release.

Personal Taxes | Capital Gains Tax 

Capital Gains may be payable when transferring assets to your SMSF if the market value of the asset being transferred exceeds the cost base of the asset being transferred. For example an in specie property transfer to SMSF for half a million dollars when the commercial property was purchased for only quarter of a million means that the in specie transfer CGT event for the taxpayer would be the quarter of a million dollars of paper profit caused by the increase in value. In the event of the property is transferred to an SMSF as part of a contribution strategy then this may help reduce the tax depending on the concessional limits available to the taxpayer but otherwise this strategy may result in tax payable on paper profits while the taxpayer has no additional cash from the transaction. Keep in mind the transfer is deemed to occur at market value so trying to just complete the transfer of the asset for a lower value will not avoid the tax problem. 

 Contact Us 

If you are considering whether an in specie contribution is right for you and want to understand more about what is an off market transfer, the type of transfers permissible or the mechanics to make an in-specie transfer please reach out to one of our friendly team and we will be happy to help you understand what is involved in transferring assets, the savings by transferring and the rules and regulations. 

Do you want to learn more about SMSF Conditions of 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 Conditions of 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 Conditions of 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 Conditions of 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)