A technical expert has suggested SMSF members should withdraw the full amount allowable if they need to take advantage of the new COVID-19 financial relief measure allowing early access to superannuation benefits.
Last week, the federal government announced it will allow individuals to access $10,000 of their super benefits early in each of the 2020 and 2021 fiscal years to provide relief from financial hardship caused by the coronavirus.
“Individuals are restricted to a single application [for legal early super benefit release] each financial year. So they cannot make multiple applications and therefore if someone is unsure of what they need to draw down, then it would be far more advantageous to be taking the $10,000, and if it’s not needed, contribute it back as a surplus amount,” Smarter SMSF chief executive Aaron Dunn said during his SMSF Day webinar today.
Dunn made it clear, in recommending this course of action, he was not condoning the use of the new rules to facilitate an SMSF recontribution strategy.
He cited a further reason as to why the full $10,000 should be drawn down in situations of doubt.
“The other thing to note here is that any shortfall from the application does not carry forward. So if the individual takes $7000 in the 2019/20 year, they don’t get the ability to take $13,000 on 1 July 2020 if they need to take the maximum amount,” he noted.
“The maximum amount [at that date] then becomes only $10,000.”
For SMSFs, the procedure to access super benefits early as one of the COVID-19 relief measures requires the ATO to make a determination as to whether the money can be released early. To this end, Dunn said advisers and their clients needed to be aware of the timing involved and a significant date.
“It doesn’t matter if the commissioner makes the determination after 30 June 2020 in respect to that 2019/20 year. The individual could apply for a second determination then effectively in the same period but in respect to two different years, but that process must be completed by 24 September 2020,” he said.
“That’s the critical date six months after this legislation was enacted.”