Accessing superannuation – Retirement and other life events
TAX Section 100A
12/03/2023
Employee / Contractor Distinction
13/03/2023
The Sole Purpose Test
The sole purpose test (SISA 1993 section 62) is one of the foundations of our superannuation system and helps us understand what superannuation is actually for and when members may be able to access their superannuation funds.
Every superannuation fund is required to meet at least one core purpose, or at least one core purpose and at least one ancillary purpose. Section 62 defines the core and ancillary purposes.
Core purpose
- Retirement
- Reaching prescribed age (65 years)
- Death prior to retirement
Ancillary purposes
- Provision of benefits for each member upon termination of employment with an employer,
- Provision of benefits upon the termination of employment due to ill health (whether physical or mental)
- Provision of benefits in respect of each member who passes away in retirement or after reaching the prescribed age,
- The provision of benefits as approved in writing by the regulator
Preservation age
Accessing superannuation under the retirement condition of releases requires that the member has at least met their preservation age. Once this age has been reached the retirement condition of release may be met depending on current employment status, age and future employment intentions.
Superannuation funds may be made up of the following three preservation components:
- Preserved
- Restricted non preserved (RNP)
- Unrestricted non preserved (UNP)
Transition to retirement income streams (TRIS)
When a member attains preservation age, they can access their superannuation benefits as a transition to retirement pension (TRIS / TTR).
- Allows access to a non-commutable income stream after preservation age.
- No lump sum access unless member has UNP
- No exempt current pension income for TRIS – Since 1 July 2017 Will be taxed as a TRIS if the pension contains any preserved
- Minimum pension requirement – 4% (2% with covid reductions – minimum can be pro-rated)
- Maximum withdrawal amount 10%
- Pension payments will deplete the UNP first
Early Release of Super
Eligibility of early release of super will turn on satisfaction of one of the following;
SIS Regulation 1.03C: (Permanent incapacity/disability)
Once satisfied;
- Funds can be accessed by lump sum or pension
- Benefits will become UNP
- Lump sum disability super benefit will be eligible for tax free uplift
SIS 1994 reg 6.01 (Temporary incapacity)
-- Once satisfied;
- Benefit accessible by member as a non-commutable income stream for the period of the incapacity
- Cannot be paid as lump sum
- Most commonly funded with insurance policy
- Payments are taxable income for member personally
SIS 1994 reg 6.01 (Terminal medical condition)
-- Once satisfied
- Lump sums full or partial are tax free
- Can start a pension however not eligible for 15% rebate if member is under preservation age
- Taxable portion of pension will be assessable income and taxed at marginal rate
Severe financial hardship
- Type 1: Under preservation age plus 39 weeks
- Type 2: Over preservation age plus 39 weeks
Compassionate grounds
-- Members need to apply to the ATO first
-- Allowed for specific situations
- Preventing foreclosure on a home
- Medical treatment / transport for you or a dependant
- Palliative care for you or a dependant
- Funeral expenses for a dependant
Disclaimer
This content is intended for general information in summary form on tax and legal matters at the time of first publication and is not intended to provide and should not be relied upon in place of appropriate professional advice. Please consult your tax, legal and accounting advisors before acting or relying on any content provided.
