The tax office has pointed to a suspicious upsurge in new self managed super funds as the rush to withdraw from the “early super” release scheme spreads to every sector in superannuation.
After a period of decline, the SMSF sector got a shot in the arm this year when commencements suddenly picked up during the first phase of the pandemic crisis.
In fact, the commencements of new SMSFs in March this year were showing a 35 per cent increase year on year.
However, Steve Keating, ATO director of SMSF client engagement, has linked the lift in new SMSF establishments to Australians trying to access super early.
Total withdrawals across the scheme at nearly $30bn have already broken Treasury’s $27bn estimate with almost three months left to run before the scheme is due to close at the end of September.
But the SMSF sector and the public sector were the two segments within super that might have been expected to sidestep a rush of early releases.
The Australian reported this week that public sector funds had been hit with a second wave of withdrawals of early super despite no reported reduced hours or job cuts in the public service. The Commonwealth Superannuation Fund alone has seen more than 12,000 applications and paid out more than $76m.
Meanwhile Keating told an SMSF Association webinar there has now been 280,000 applicants from the SMSF sector where there are more than 600,000 funds and 1.1 million members.
Despite the SMSF sector being the richest segment in super, Keating also said SMSF applications were limited to 170,000 funds, which suggests that among many funds where money was withdrawn – it was withdrawn by more than one member to maximise the amount that could be removed.
Under the terms of the scheme, an individual member could take out $10,000 last financial year and $10,000 this financial year before September 24.
Tellingly, the uptick in SMSF commencements reversed in the wake of the announcement of the JobKeeper scheme with new commencements falling by 20 per cent in May, which indicates that many who were initially panicked into accessing super felt it was no longer necessary when the JobKeeper scheme was announced.
Keating says the ATO is keeping a close eye on activity in the SMSF sector, especially where there had been funds commenced in the early phase of the crisis.
He said penalties can be applied for breaking the rules of the scheme. A false claim under the scheme can attract a penalty of $12,000 which is more than the maximum individual amount that can be taken out in any financial year.
Nonetheless, it is clear the policing of the scheme has to date been light with no penalties announced for breaking the terms of withdrawal, which include job loss, eligibility for JobSeeker or a 20 per cent reduction in working hours.
A further concern is that the average amount being removed this financial year has jumped to $8599 against $7500 in the first round of withdrawals before June 30.