ATO warns super members of illegal early-release schemes

Beware of offers to withdraw your super early

The Australian Taxation Office (ATO) has warned superannuation members to beware of people promoting illegal super schemes that help members withdraw their super early.

Most of these promoters encourage you to transfer your super from your existing super fund to a self-managed super fund (SMSF), so you can access your super before you’re legally entitled to it.

When you can legally access your super

Generally, you cannot access your super until you reach your preservation age and stop working.

For people born before 1 July 1960, the preservation age is 55. It then increases gradually. For people born on 1 July 1964 or later, the preservation age is 60.

There are only limited circumstances under which you can legally access your super early.

They include compassionate grounds (e.g. to pay for medical bills) and severe financial hardship.

How illegal super schemes work

The promoters of the illegal super schemes:

• target people under financial pressure or who don’t understand the super laws and are unaware of the consequences of getting involved in the scheme
• claim you can withdraw your super and put the money towards anything you want — which isn’t true
• charge high fees and commissions, putting you at risk of losing some or all of your super to them
• typically require you roll over super from your existing super fund into an SMSF.

Penalties for illegally accessing super early

If you illegally access you super early, the ATO warns, it will be included in your taxable income, even if you return the super to the fund later.

What’s more, you could incur a fine of up to $340,000 and a jail term of up to five years.

At the time of writing a new law was being proposed that would result in any illegally accessed super being taxed at 45% (regardless of your marginal tax rate).

(Promoters of illegal super schemes also face possible civil and criminal penalties.)

If you’re approached

If you’re approached by someone offering to help you access your super early, the ATO recommends you call them on 13 10 20 or contact your super fund immediately.

For more information, visit the ATO’s ‘Illegal early release of super’ web page.

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