Bryce Figot answers four frequently asked questions about conditions of release.
Broadly, it is necessary to satisfy a condition of release in order to withdraw benefits from superannuation. The condition of release regime has been around as long as the SIS legislation. However, there are still a number of frequently asked questions. This article seeks to provide answers to these questions.
Retirement, if member stopped working long before 55
Question: Mary ceased gainful employment many years ago when her first child was born. Her children are all adults now and she has just attained age 55. Does this constitute the condition of release of retirement?
Short answer: Yes.
Discussion: Retirement is defined very specifically in reg 6.01(7) of the SIS regulations. There are two different definitions that, broadly, apply as follows. The first definition applies to those who have reached their preservation age (that is, 55 in Mary’s case) but are not yet 60. The other definition applies to those who are at least 60 years of age. Clearly, Mary is in the first category.
For the first definition, retirement occurs if both of the following occur:
• an arrangement under which the member was gainfully employed has come to an end; and
• the trustee is reasonably satisfied that the person intends never again to become gainfully employed.
However, the legislation is silent on whether the condition will be satisfied whether the member ceased gainful employment before or after reaching preservation age. On a strict reading of the legislation, we believe the answer is that the condition will be satisfied in either case. However, it’s always nice to receive confirmation from the regulator.
The explanatory statement that accompanied the SIS regulations does not provide any helpful insights. Also, the ATO have never issued anything on point.
However, the Australian Prudential Regulation Authority (APRA) – the regulator of non-self-managed super funds (SMSFs) – has issued materials on point. In APRA circular I.C.2, APRA states that the arrangement under which the member was gainfully employed “may have occurred at any time, including prior to their preservation age”.
Accordingly, assuming the trustee is reasonably satisfied that Mary intends never to become gainfully employed again, she has retired and can access her super.
Terminal medical condition
Question: George is 31 years old and is diagnosed with cancer. The doctors tell him he has less than 12 months to live. If George withdraws money from a super fund due to a terminal medical condition but does not die, does he have to return the money? Does he have to pay tax on the money?
Short answers: No; and no.
Discussion: The SIS regulations recognise a “terminal medical condition”. If a person has a terminal medical condition, it is a condition of release under the SIS regulations. Regulation 6.01A of the SIS regulations defines a terminal medical condition as being where:
• two doctors certify that the person suffers from an illness that is likely to result in death within 12 months; and
• at least one of the doctors is a specialist.
If, despite the doctors’ certification, the person does not die, there is no legislative compulsion to return the money to the superannuation system.
Similarly, the income tax legislation recognises a terminal medical condition. Broadly, it provides that if you:
• receive a lump sum; and
• a terminal medical condition exists when you receive it;
you receive the payment income tax-free. See reg 303-10.01 of the income tax regulations.
And if a person has withdrawn money and lives, there is no legislative requirement to pay income tax on it.
Departing Australia
Question: Joanne is an Australian citizen. Her husband Gus is an Australian permanent resident. They both decide to leave Australia permanently. Can they access their superannuation benefits?
Short answer: No.
Discussion: There is a provision for former temporary residents to access their superannuation benefits. See item 103A of sch 1 of the SIS regulations. However, there is no equivalent for permanent residents or for Australian citizens. No doubt the policy behind this difference in treatment is the Government’s concern that permanent residents or Australian citizens might one day return. The Government no doubt wants the person’s superannuation benefits to be waiting for them in retirement to minimise the requirement for Government payments.
Accordingly, if Joanne and Gus want to access their superannuation benefits, they will have to satisfy one of the other conditions of release (for example, retirement).
Compassionate ground in an SMSF
Question: Amelia, 39, and her husband Thomas, 42, are struggling to have a child. They cannot currently afford fertility treatment on Thomas’s wage and without private health cover. The couple claim they are suffering acute mental distress because of their inability to have children. Their benefits are in an SMSF. Are they allowed to withdraw their superannuation benefits?
Short answer: Perhaps.
Discussion: There is a condition of release entitled “compassionate ground”. In order to qualify for it, one must apply to the “regulator”. Naturally, in respect of SMSFs, the “regulator” almost always refers to the Australian Taxation Office. However, this is the single area where “regulator” refers to the Australian Prudential Regulation Authority (APRA).
Accordingly, Amelia and Thomas should apply to APRA. APRA may determine that a benefit is required for uses such as:
• to pay for medical treatment or medical transport for the person or a dependant;
