Clinton Jackson, partner at Cooper Grace Ward Lawyers, said he has seen an increase in queries as to what qualifies as retired in regard to accessing superannuation, especially in light of the proposed Division 296 tax and trying to remove excess money to avoid “nasty consequences”.
“The reason you need to ensure you satisfy conditions of release in super is because the consequences can include tax to the recipient plus interest and penalties,“ he said.
“And if you are managing an SMSF, there may also be compliance issues that result in further penalties, such as administrative penalties, disqualification and potentially even the nasty one – non-compliance.”
Scott Hay-Bartlem, partner at CGW, added the Australian Taxation Office (ATO) has warned SMSF trustees about illegal early access, but he said people often get confused about what this entails in regard to what constitutes retirement.
“It might either be taking out one or more lump sums, just a one-off payment, or it might be starting a pension or income stream from your super fund as a series of payments, because the rules are really the same for both,” he said.
Jackson said the rules relating to accessing superannuation have changed significantly over the past decade, but there is one main criteria that should be forefront in any decision.
“The rule I always like to start with is the really easy one, which is turning 65 because once you do turn 65, then you can access your superannuation without having to satisfy any other requirements,” he said.
“It’s a very simple test. You are either over 65 or you’re not, and we don’t care if you’re still working. So your employment status is completely irrelevant once you have turned 65.”
However, there are nuances surrounding whether a member is “properly” retired, he said.
“The retirement condition is multi-pronged, and you need to bear that in mind. There have been different rules in the past, but now they start when someone turns 60. If you’re looking at the first element of the retirement definition, it is when someone turns 60 and never intends to work again,” he said.
“There are three rules [that] people often miss. Number one is you must have turned 60, number two is you must not be in gainful employment, and lastly, you have to never intend to be gainfully employed again.”
Hay-Bartlem said the definition of gainful employment is defined in the Superannuation Industry (Supervision) Act (SIS Act) and requires someone to be employed, or self-employed, for gain or reward for at least 10 hours per week.
Jackson said it is best practice to obtain a statutory declaration as evidence of gainful employment to avoid allegations of “manufacturing” a result to gain access to super funds.
“One thing that needs to be highlighted with these retirement conditions is that if you’re never intending to work again, it doesn’t matter when you actually retired. You could have retired when you’re 54 or 56, so long as you’re now 60 and you never intend to work again, then you still satisfy the conditions of retirement,” he said.
“The second type of retirement is when you cease a position of gainful employment after turning 60, but this one has a different intention. You don’t have to have that intention of never going back to work again. All you have to do is stop a form of gainful employment after your 60th birthday, and you’re within the rules even if you intend to go back to work or continue other jobs.”
