Keeping to super's sole purpose
The most fundamental superannuation rule is that super is for the sole purpose of providing retirement and member death benefits - not to subsidise .....
..... pre-retirement lifestyles or other personal pre-retirement expenses.
When Matt Bambrick, assistant commissioner for SMSFs with the ATO, gave a broad-ranging speech this month to an SMSF conference*, he included a look at an "emerging" issue and a long-standing issue for self-managed funds. Both involve what is termed in superannuation law as the sole-purpose test.
In the emerging category, Bambrick discussed the promotion of "questionable" overseas seminars for SMSF trustees. He says the promotions claim trustees can gain tax deductions for the full cost of travel, accommodation and meals. The seminars appeared to contain minimal training relating to SMSFs.
Without delving into the possible tax implications of claiming deductions for the overseas seminars, the assistant commissioner says SMSF trustees should be aware of the "potential to contravene the sole purpose test".
Later in his speech, Bambrick focused on the seemingly relentless schemes to persuade super fund members to illegally gain early access to their super savings. Illegal early access to super contravenes the sole-purpose test and other critical provisions in superannuation law.
As a general condition, super fund members cannot gain access to their preserved super benefits until retiring after reaching their preservation age of at least 55 or turning 65. See the ATO’s publications regarding accessing your super.
Certainly, there are limited and strictly administered provisions allowing access to super before members reach their preservation age. These include cases of severe financial hardship as well as on compassionate and medical grounds. And members over 55 can receive a transition-to-retirement pension from their super while still in the workforce.
A key point for super fund members to keep in mind is that the use of retirement savings to subsidise their pre-retirement lifestyles means the money is no longer be available to help finance their eventual retirement. That’s straightforward commonsense.
* The Masters SMSF Conference and Expo 2014 held by CPA Australia.
By Robin Bowerman
Principal & Head of Retail, Vanguard Investments Australia
31st July 2014