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  •   3 April 2020

SuperConcepts cautions against abusing claims of release loopholes

SuperConcepts has warned against applying for the early release of super to obtain tax benefits from the Government’s COVID-19 relief measures.

“We are now fielding inquiries from the public about a strategy which involves rearranging your affairs to take advantage of a perceived tax arbitrage opportunity in this financial year and next financial year,” said Peter Burgess, SuperConcepts’ General Manager of Technical Services & Education.

“We are hearing about people who either voluntarily or involuntarily agree to reduce their hours by 20 percent or more for what could be a short period of time, and then make salary sacrifice contributions to their superannuation fund.

“They then apply to have $10,000 released from their superannuation fund in this financial year and a further $10,000 released in the next financial year before 24 September, under the Government’s new COVID-19 compassionate ground condition of release.

“Depending on the individual’s income and their available concessional contribution cap space, this can result in a material tax saving for the individual.

“This is because the amount withdrawn from their super fund under this new condition of release is tax free and the amount sacrificed to super is only taxed at 15 percent compared to being taxed at normal marginal rates of tax if this amount is paid to them as ordinary income.

"We need to remember the purpose of this new compassionate ground condition of release is to provide financial relief for those impacted by COVID-19, it shouldn’t be seen as an opportunity to embark on tax arbitrage strategies,” Mr Burgess said.

Superannuation funds including SMSFs will be required to report amounts released under this new compassionate ground condition of release to the ATO. In the case of an SMSF, there is an existing label on the SMSF annual return which will need to be used for this reporting.

“In situations where an individual is salary sacrificing to superannuation, but also has amounts released from their superannuation fund under this new condition of release, the ATO may scrutinize the individual’s claim of reduced hours and may check whether the reduction in their income, as reported in their personal tax return, warranted a compassionate grounds release,” he said.

“It’s also worth noting the application for release is likely to involve the completion of an on-line ‘approved form’ which means penalties apply to false and misleading statements.

“It will be difficult to justify a claim for the early release of some of your superannuation on COVID-19 compassionate grounds if you are making salary sacrifice contributions to your fund,” Mr Burgess said.


To keep practitioners up to date with the latest developments, SuperConcepts is running complimentary weekly COVID-19 SMSF webinar updates. Click the link to register.



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