It goes without saying that superannuation savings are for retirement, but sometimes when we’re financially s-t-r-e-t-c-h-e-d it’s hard not to think of that little pot of gold and how we can get our hands on it. The good news is that there are ways to unlock super and give your funds an early release should you need it, but the bad news is that the conditions of release are strictly limited.
Early release of superannuation savings generally falls into two categories – severe financial hardship, such as the bank threatening to sell your house, and compassionate grounds to pay for a funeral, medical expenses or palliative care. On the downside, you can’t simply ‘withdraw’ some or all of your super early to pay, for instance, a lump sum into your mortgage or buy that new car that’s on special.
Here’s an overview of what can and can’t be done, according to the Australian Tax Office (ATO) and the Department of Human Services (DHS).
1. Losing your home
YES: You may be eligible for an early release of superannuation for mortgage assistance if:
- your bank or council is threatening to repossess or sell your home due to arrears on your mortgage or council rates
- the property under threat is your usual place of residence
- you are responsible for the mortgage or rates repayments, and
- you can’t afford to pay the arrears without accessing your superannuation
NO: You will not be eligible for mortgage assistance if:
- you are not currently in arrears on your mortgage or council rates but expect to have difficulty making future repayments
- you are in arrears on your mortgage or council rates but your bank or council is not threatening to repossess or sell your home
- it is for a property or debt owned by one of your children or other family members or dependents
- you want the money for an investment property, or
- you are in rental arrears
2. Severe financial hardship
YES: If you’re facing financial hardship you might be able to access your super if:
- you have received government income support payments continuously for 26 weeks and can’t meet reasonable and immediate family living expenses
- you can show that you can’t pay for the expenses any other way, such as by using savings or assets
NO: You will have problems if:
- you require less than $1,000 or more than $10,000 (the minimum & maximum amounts)
- you plan on withdrawing more than once in a 12-month period (not allowable)
The following ways to access your super early are on compassionate grounds.
3. Terminal medical condition
YES: You may be able to access your super early if:
- you have a terminal medical condition that is likely to result in your death within 24 months
- two medical specialists certify this is the case
- one of those doctors is a specialist in the area related to your illness or injury
4. Palliative care
YES: You may be able to access your super early to cover palliative care expenses for yourself or a dependent if:
- you or your dependent has a terminal illness
- you or your dependent need assistance paying palliative care expenses, and
- you can’t afford to pay for the expenses without accessing your superannuation
5. Temporary incapacity
YES: You may be able to access your super early if:
- you are temporarily unable to work, or
- need to work less hours because of a physical or mental medical condition
6. Permanent incapacity
YES: You may be able to access your super early if:
- you have a permanent physical or mental medical condition that is likely to stop you from ever working again in a job you were qualified to do by education, training or experience
- at least two medical practitioners certify this is the case
7. Home or car modifications
YES: You may be able to access your super early if:
- you or your dependent has a severe disability and you need to modify your home or car to suit
- you need to buy disability aids to accommodate a severe disability
- you can’t afford to pay for this without using your super
NO: You will have problems if:
- you or your dependent’s medical condition has not been diagnosed as a severe disability
- you want to modify a dependent’s home that is not your principal place of residence, or
- you or your dependent cannot work due to a severe disability and you need help paying living expenses
8. Funeral expenses
YES: You may be able to access your super early if:
- a dependent has passed away
- you need assistance paying funeral expenses, and
- you can’t afford the expenses without accessing your superannuation
NO: You will not be eligible if:
- you are applying for funeral expenses for someone who is not a dependent
- your dependent’s funeral has taken place and had been paid for, or
- you are applying for your own funeral plan
9. Super balance of less than $200
There’s only one other way to access your super early and that’s if your super balance is less than $200. If you change employers contact your super fund to request access. No tax is payable on balances of less than $200.
Superannuation tax liabilities
The tax liabilities associated with unlocking superannuation early, that is before you turn 55 or 60, are not always clear cut.
If your fund releases benefits on compassionate grounds because you have a terminal illness, the super will be paid as a lump sum and is tax-free if it is withdrawn within 24 months of medical certification.
If you have a permanent incapacity you can choose to receive the super as either a lump sum or as regular payments (income stream) which means different tax components, according to your own individual situation. On the other hand a super withdrawal due to temporary incapacity will typically be paid in regular payments over the time you are unable to work. This will be taxed as a normal income stream.
In the case of severe financial hardship necessitating access to super funds, benefits will be taxed according to your financial situation. It’s also worth remembering that unlike regular income tax deducted from your pay, which you may be able to claim back when you lodge your tax return, you cannot claim back the benefits tax payable on your super benefits if your income for the financial year falls below a certain amount.
Your super fund is the first point of contact. They will tell you what you need to know about early release of any preserved benefits and associated tax liabilities. If you’re applying for compassionate reasons, you may have to apply to the Department of Human Services – www.humanservices.gov.au – but, once again, your fund will advise you.
If you are currently in the market for a super fund, or are considering switching, check out our comparison table below which offers a snapshot of the current market with links direct to the providers website. Please note that this table has been sorted by our star rating (highest to lowest, A-Z) and is based on the policyholder being aged between 30 and 39, with a super balance of $55,000 to $100,000. You can try this tool for yourself here.
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