One of the biggest mistakes you can make as a trustee/member of a Self-Managed Superannuation Fund (“SMSF”) is to treat the fund’s money like your own and withdraw the monies before you have reached retirement age. This is known as early release. And if you do not meet one of the exceptions, it is known as illegal early release of superannuation funds.

The sole purpose of a superannuation fund is to ensure individuals have monies for their retirement. So, a member of a superannuation fund generally cannot access their superannuation funds until they reach retirement age. In rare instances, such as terminal illness or long-term unemployment, your superannuation fund may let you access some of the money early.

Superannuation rules provide for strictly limited exceptions to allow you to withdraw your funds before your retirement age. The purpose of the early access scheme is to assist you with your immediate and reasonable unpaid expenses. You can apply for the early release of super to help your partner, child or other dependant. The Australian Taxation Office (ATO) will consider a non-exhaustive list of compassionate grounds for the early release of some SMSF monies; these may include severe financial hardship or terminal illness.

Civil Offence

The ATO regards getting your superannuation funds early, that is, illegal early release, as a serious offence.

Depending on the severity of the breach, the ATO may:

• disqualify you as a trustee of the SMSF;
• make the SMSF non-complying; and
• freeze the SMSF’s assets.

In addition, a Court may order that the person pay to the Commonwealth a monetary penalty for a breach. The maximum penalty for a civil penalty order is 2,000 penalty units. From 1 July 2017, the amount of the Commonwealth penalty unit is $210; therefore, the maximum civil penalty is equal to $420,000 per contravention.

So it is essential to be aware of the laws governing the management of your SMSF, particularly early release of superannuation funds that you do not breach them.

What you should do

If you have breached superannuation law in regard to your SMSF, or you would like to know more about your rights and responsibilities, contact us now.

Comment:  The earlier you act to rectify a breach the better, so contact us now if you have breached the illegal early access rules now so that we can help minimise damage to you and your SMSF and avoid the ATO taking punitive action