There are few more important words in the world of SMSF compliance than the three words that make up the title to this article. Superannuation provides some outstanding benefits for members, but the main price you pay for these benefits is the need to lock up your superannuation savings for retirement. The only way that you can access your Super without causing a compliance problem (and a very serious one given that this is one of the major focuses of ATO compliance and enforcement programs) is to first satisfy a condition of release. This is not always easy to remember, and in fact even the government advertising in 2007 when all payments to member's over the age of 60 became tax free, forgot to remind people that they had to be eligible to take the money. This caused quite a lot of confusion in the first year or so.
There are a number of conditions of release which we will cover here. The main ones not surprisingly relate to retirement and or ceasing work. The next important term you need to keep in mind is 'preservation age'. Preservation age is the age that under normal circumstances you may meet a condition of release. This age is currently 55 but if you born after 1st July 1960 it progressively moves up to age 60.
The first condition of release applies to a member if they have reached preservation age and have retired. The definition of retired is that you never again intend to seek gainful employment. This doesn't mean that you can't change your mind and return to work, but at the point where you notify your fund of your retirement this cannot be your intention. Interestingly if you do change your mind and return to work, the funds that were in super when you met the condition of release, remain accessible to you. Any new money contributed once you are working again is locked away (preserved) until you once again meet a condition of release.
The second circumstance where you will gain access to your preserved super money is where you are at least 60 years of age and leave the employment of an employer who has been contributing to that super fund. In this situation your preserved money will become unrestricted non-preserved and you can access it to any degree you like. Again however, any money contributed after that point will again be preserved unless you are permanently retired.
The final common condition of release is where you reach 65 years of age. This is an automatic condition of release and regardless of your work status, you will have complete access to your superannuation. Any new contributions you make after turning 65 (if you are eligible to make contributions) will be instantly accessible.
So these are the main conditions of release that you need to know. There are some grey areas surrounding just what constitutes ceasing employment for a 60 year old, but this is outside the scope of this article. There are however, a number of other less common circumstances where you may gain access to some or all of your super.
These include the following:
- Total and Permanent Disablement - if you satisfy this condition you will have full access to your superannuation benefits regardless of age.
- Temporary Disablement - for the period of your incapacity you can take a non commutable income stream no greater than your earnings before the incapacity.
- Financial Hardship - if the trustee is satisfied that the member is in severe financial hardship they can release an amount not less than $1,000 and up to $10,000 in a given year. However most importantly, this condition is not self assessed. There are strict criteria that include receipt of Centrelink payments. If this is something you are seriously considering, looking at the Superannuation Industry Supervision Regulations 1.06(5) for a detailed list of the conditions that would apply to you.
- Terminal Illness - if satisfied, you will have complete access to your superannuation.
- Small balance of less than $200 - there are a number of circumstances where members with small balances can access this money including Termination of work and your employer was a standard employer sponsor of the fund or where you were a lost member who is subsequently found.
- Compassionate grounds - some limited access may be granted by the regulator.
If you are thinking of taking some money out of your superannuation fund, always remember to check whether you have satisfied a condition of release for those funds. A mistake will immediately cause a compliance problem which can lead to disqualification as a trustee (which means you can no longer be a member and you may need to unwind the fund's investments), a personal tax bill for the money you took out of the fund, and perhaps the fund being judged as non-complying.
We also cannot stress enough, that while you may definitely be suffering financial hardship, most SMSF members probably won't satisfy the criteria for accessing financial hardship benefits.