Accessing the money in an SMSF to pay benefits is generally only allowed when you reach what’s called your “preservation age” and meet one of the specified conditions of release .Setting up or using an SMSF to gain improper early access to superannuation benefits is illegal and this area has become a focus for the ATO given the increasing number of SMSFs and the apparent variance of trustee knowledge in the area of withdrawing benefits. If a benefit is unlawfully released, the ATO may apply significant penalties to trustees, to the SMSF itself, as well as the recipient of the early released payments.

Blog: When can your SMSF’s benefits be paid?

The money put aside in your self-managed superannuation fund (SMSF) is of course intended to be kept to fund the retirement of you and your fellow fund members. This is the over-riding obligation of you as trustee to adhere to the “sole purpose” test.

Accessing the money in an SMSF to pay benefits is generally only allowed when you reach what’s called your “preservation age” and meet one of the specified conditions of release – for example, you turn 65.

Your preservation age

Your preservation age depends on when you were born (see table on page 5). It is determined by legislation, and will increase steadily so that by the year 2024 it will be set at age 60 for everyone born on or after July 1, 1964.

 

YOUR PRESERVATION AGE

Date of birth

Preservation age

Before 1 July 1960

55

1 July 1960 - 30 June 1961

56

1 July 1961 - 30 June 1962

57

1 July 1962 - 30 June 1963

58

1 July 1963 - 30 June 1964

59

After 30 June 1964

60


The term “preservation” means that money in superannuation must remain in the fund until one of the specified conditions of release are met (more below). Super benefits are allocated to three preservation categories:

  • preserved
  • restricted non-preserved, and
  • unrestricted non-preserved benefits.

Preserved and restricted non-preserved benefits must be retained in superannuation until a condition of release is met.  The latter has a release condition dealing with ceasing "gainful employment", but it's a fine distinction and you should check with our office for more information

These two categories basically transform into unrestricted non-preserved benefits when a condition of release is met. Unrestricted non-preserved benefits can be accessed immediately, with no conditions of release having to be met.

Unrestricted non-preserved benefits are generally from certain amounts that were accumulated before July 1, 1999, when the legislation to preserve superannuation savings came in.

Cashing of benefits

Getting money from an SMSF is known as "cashing of benefits" and can be paid as a lump sum or by starting a pension.  Note that there are restrictions about which form of payment can be made. When you can apply for the cashing of benefits depends on both preservation conditions and meeting a condition of release.

The law spells out in some instances the form that cashing of benefits must take, known as "cashing restrictions", and your SMSF's trust deed might also stipulate rules for paying benefits.

All forms of payments are "voluntary" cashing of benefits in that the member, once eligible, can decide to cash benefits. One exception however is the death of a member when benefits must be "compulsorily" cashed out.

Conditions of release

The most common conditions of release for paying out benefits are:

  • Retirement: Actual retirement depends on your age and, for those less than 60 years of age, future employment intentions. A retiree can't access their preserved benefits before they reach preservation age.
  • Transition to retirement (attaining preservation age): If you are under age 65 and have reached preservation age, but remain gainfully employed on a full-time or part-time basis, you could access some benefits as a “non-commutable income stream” (meaning it cannot be withdrawn as a lump sum). Ask us if you’d like to know more about these income streams.
  • Attaining age 65: If you reach age 65, you may cash your benefits at any time. There are no cashing restrictions — but it's not compulsory to cash out benefits merely because you reach a certain age.

There are a number of other circumstances in which benefits can be released, such as incapacity, severe financial hardship, a temporary resident leaving Australia, terminal illness or injury.

  • Incapacity: If, due to ill health, you have to cease gainful employment and are unlikely to regain work for which you are qualified, benefits may be cashed with no restrictions. If the end of gainful employment is due to a temporary state of health and is not a permanent condition, temporary incapacity benefits may be paid as a non-commutable income stream. This is generally up to the level of income received before the temporary incapacity, and includes salary support insurance or sick leave payments.
  • Severe financial hardship: Releasing benefits on these grounds depends on being able to show that you cannot meet living expenses and have been on government income support for either 26 weeks (if before reaching preservation age) or 39 weeks (having reached preservation age). There are also restrictions on payment amounts, and advice is recommended.
  • Compassionate grounds: Until recently, the Australian Prudential Regulation Authority (APRA) had the discretion to release benefits on compassionate grounds, but the role has now been taken over by the Department of Human Services. Early release is generally done for things like treating life threatening illness, palliative care or other medical support, or to prevent foreclosure on the family home. The amount is determined by the government, and must be made as a lump sum.
  • Temporary resident leaving the country: Eligible temporary resident visa holders who permanently leave Australia can apply to the ATO to have accumulated superannuation benefits paid out. Ask this office for more details.
  • Terminal illness: On confirmation of diagnosis of a terminal medical condition, all benefits can be deemed unrestricted non-preserved and can be cashed out. Prescribed certification from medical practitioners will be required.

Penalties for improper early access

Setting up or using an SMSF to gain improper early access to superannuation benefits is illegal and this area has become a focus for the ATO given the increasing number of SMSFs and the apparent variance of trustee knowledge in the area of withdrawing benefits. If a benefit is unlawfully released, the ATO may apply significant penalties to trustees, to the SMSF itself, as well as the recipient of the early released payments.