ATO warns against schemes promoting early access to super in tough times

The Australian Taxation Office has warned that schemes offering people early access to their super fund are illegal, charge fees of up to 30% and put people at risk of identity fraud.

The ATO says there are “severe penalties” for illegally accessing your super early, and promoters may receive significant fines and go to jail. Super savings are accessibly only at retirement age, which is 55 for those born before July 1, 1960 and increases to 60 for those born after June 30,1964.

While there are special circumstances in which super can be accessed, including medical conditions and severe financial hardship, the ATO warning comes as the sharemarket delivers a slump not seen since the GFC. The sharemarket rout has also prompted margin calls and deposit inquiries to soar, Bendigo & Adelaide Bank said yesterday.

In a notice, the ATO says “some people promoting illegal super schemes will tell you that they can help you access your super savings now for reasons like paying off credit card debt, buying a house or car, or even going on holiday.”

“These schemes are illegal. They will cost you a lot more than you expect and get you into a lot of trouble,” it says, including tax on the money accessed early and the potential for other penalties.

The tax office advises people involved with a scheme to contact it immediately, adding it will take voluntary disclosure and circumstances into account in determining any penalties.

“In the worst case scenario, if you set up an SMSF and knowingly access your super savings, you may also face a fine of up to $220,000 and a jail term of up to five years,” it says.

According to the Australian Financial Review, the ATO last year identified almost 1,300 people involved with illegal schemes, and charged them $9.4 million in extra tax and penalties.

Gavan Ord, business policy adviser at CPA Australia, says while he hasn’t heard of early access to super schemes increasing, they do come up periodically particularly during difficult times.

The ATO says the schemes involve offering to transfer super savings from existing super funds to another type of fund (mainly a self-managed super fund).

“Taking your money out of your SMSF before you are allowed is illegal,” the ATO says.

“Promoters can charge fees of up to 30% or even take all of your super savings.”

“Illegal super schemes may lead to identity theft.”