The ATO is auditing members who accessed early withdrawals. Here’s what that means

The ATO is reviewing early super access applicants to find members who withdrew money without being eligible.

The ATO is reviewing early super access applicants to find members who withdrew money without being eligible.

Australians abusing the early super access scheme could face severe penalties as the tax office tests a new audit process to identify rorters.

Speaking before the Senate Select Committee on COVID-19, ATO second commissioner Jeremy Hirschhorn said the tax office had assigned 130 staff to a ‘pilot’ audit of the early super access scheme.

The ATO will only audit a few hundred members to begin with, but if it finds a high proportion accessed the scheme without meeting the criteria, it could launch a much larger program.

And members caught abusing the system could face fines of up to $12,600 every time they accessed their super inappropriately, or be forced to pay income tax on the money they withdrew. 

“There are a range of consequences, but … we moderate those consequences depending on the deliberateness of the action,” Mr Hirschhorn said.

Where we think somebody has made an honest mistake as to their eligibility, and particularly where they voluntarily disclose that to us, we are unlikely to impose significant consequences.”

What the audits mean

By August 2, cash-strapped Australians had withdrawn $30.3 billion from their superannuation accounts, according to APRA. 

Members withdrew an average of $7695 when accessing the scheme for the first time (three million applications) and $8511 when accessing it for the second time (1.1 million applications).

This money is tax-free, so long as the applicant was genuinely eligible for the program and met one of the following criteria:

  • Was unemployed
  • Was eligible to receive JobSeeker, Youth Allowance for job seekers, parenting payment, Special Benefits, or Farm Household Allowance
  • Was made redundant, had their hours reduced by 20 per cent or more, or suffered a reduction in turnover of at least 20 per cent (sole traders) on or after January 1, 2020.

Anyone who met one of the above criteria has no need to worry about an audit. They face no penalties and the money they withdrew from superannuation will remain tax free.

But what happens if someone’s circumstances changed, making them ineligible after they had already accessed the cash?

Chartered Accountants ANZ superannuation lead Tony Negline said members who fall into this category have nothing to worry about, either.

You made a declaration to the tax office when you said yes I qualify, [and] you can only make a declaration with what you knew at the time,” he said.

If the information you provided was correct at the time you applied to receive the money, then there’s no need to feel anxious.

“It’s like saying you didn’t take an umbrella to work today because the Bureau of Meteorology said it wouldn’t rain until tonight, but the rain came early and you got wet,” Mr Negline said.

“You were only operating with the information you had at hand.”

Accidental ineligible claims face higher taxes

When the early super access scheme was unveiled on March 22, many Australians were concerned about their employment status, and the JobKeeper program was still a week away from being announced.

Some people may have rushed to withdraw money in case of emergencies without checking to see if they qualified under the scheme.

ATO’s Mr Hirschhorn said that honest mistakes would not be met with the same penalties as deliberate attempts to exploit the system.

But senior tax agent Liz Russell told The New Daily that ineligible members who made honest mistakes would still be required to pay tax on the money they withdrew.

“I don’t think there’s any way those people are going to be able to avoid paying tax if they did it in error,” she said.

That means households that have already spent the money they took out of super may get a nasty surprise in their tax returns.

“If they took $10,000 out and spent it on something and do their returns and the ATO says you owe us 37 cents to the dollar, they now have to go and find $3700 to pay their tax bill,” she said.

Taxpayers who are worried about this should contact their accountant, or even the ATO directly, to discuss their options.

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