In recent years we've seen a continuing increase in the number of applications for Early access to superannuation on compassionate grounds. Although there has been a slight decline in applications this year, the total value approved increased to a record $1.46 billion.
Compassionate release of super is available only in limited circumstances and should be viewed as a last resort, when all other options have been exhausted. However, we continue to see third-party facilitators and some health practitioners encouraging individuals to access their super early.
Your clients may not fully understand the financial and tax consequences of accessing their super early. They may not be aware of the tax withheld from payments, the impact on their retirement savings, or the potential effect on government payments and benefits – now and in the future.
Tax professionals can play an important role in helping clients make informed decisions before applying for compassionate release of super. If your client is planning to access their super early, we encourage you to help them understand:
- the tax consequences, including
- approved amounts are generally considered assessable income
- tax may be withheld by the super fund
- it may need to be reported in their tax return
- changes to their taxable income may affect their eligibility for government payments and benefits. Encourage clients to contact their super fund before applying to find out how much tax may be withheld, any fees that may apply and how the withdrawal will affect any insurance cover connected to their super account
- the long-term effect on their retirement savings, including the loss of future earnings on withdrawn amounts
- there are consequences for people who deliberately submit false, misleading or fraudulent applications.
Encourage your clients to seek financial advice before deciding to access their super early.