Opinion
What happens if you make an illegal raid on super to ease tough times
More SMSF trustees are being caught out by the ATO illegally accessing their retirement savings – this is how they’re dealt with.
Meg HeffronContributorDon’t touch your super before you’re allowed to – even if you have a self-managed superannuation fund.
The Australian Taxation Office occasionally “disqualifies” certain people, which means they can never again be the trustee of an SMSF. This particular punishment is usually reserved for those who’ve done quite outrageous things when it comes to breaking super rules. So it’s worrying to hear that disqualifications are on the rise. What exactly are people doing to warrant one of the ATO’s big sticks?
A common theme is taking money out of super before they’re allowed to. That doesn’t mean accidentally transferring money from the wrong bank account because you’re not concentrating when using internet banking – it’s far more deliberate. It’s taking money out of an SMSF and hoping no one will notice. In fact, some people even set up an SMSF with that express purpose.
So how risky is this? If being made a “disqualified person” doesn’t sound too scary, be cautious. Even if you never intend to have an SMSF again (after you’ve cleared out all the money), you might still not want your name up in lights as a person the ATO has officially struck off. It’s a permanent black mark that can hurt professionally or financially – your name is on a public register forever as someone who willfully broke the law on a financial matter.
That’s not the ATO’s only option. Eventually, it will find out how much you’ve taken out illegally – no one can hide from the commissioner forever.
The amount you’ve taken out illegally is not treated as a super benefit. It’s taxed at your normal marginal rates. That applies even if you put the money back into your fund.
In fact, putting it back in can create other problems – it’s treated as a new contribution. There’s basically no way your SMSF can ever be a source of cash for your personal needs, even for a short period. Worse still, the longer it takes the ATO to track you down and hit you with more tax, the higher the interest penalties on your “underpaid” tax.
Don’t expect the commissioner to go easy based on stories of personal financial challenges or business troubles – there are specific “conditions of release” in super law already that allow people to take out some of their super when they are experiencing financial hardship. But many people who extract money from their SMSF illegally don’t qualify – the financial hardship must be very severe and even then, the amount that can be paid out legitimately might be small.
The law also provides for financial penalties when people break the law. These get paid by the trustees (or directors of the trustee company) personally. They can’t be paid from your SMSF even if it still has some funds.
Deliberately flouting super rules like these gives the ATO scope to charge 20 “penalty units” (with each penalty unit costing $313). So that equates to about $6200. If it doesn’t sound like much, remember this is just the starting point. The ATO could charge that for each offence (so each time money is taken out) and to each trustee. The amounts could definitely add up if the ATO really wanted to take it as far as it could.
Finally, the SMSF can be deemed to be “non-complying”. This is often referred to as the nuclear option because it takes a lot to rile the ATO enough to do it. It means that the fund is no longer taxed like a normal super fund. It pays tax at 47 per cent instead. And it pays a special once-off tax the year it becomes a non-complying fund, which for many funds can be as much as 47 per cent of all the fund’s existing assets (ie, you lose nearly half of all your super immediately).
A recent survey by comparison site Finder found that 56 per cent of the people it surveyed would love to tuck into their super to ease cost-of-living pressures or help them buy a home.
At a human level, it’s entirely understandable – for many people, times are tough, and they can see their super building up while at the same time they can’t buy a home. But accessing it illegally if they have an SMSF will lead to things getting much more serious.
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