The regulator has become concerned over unscrupulous promoters. 

There are many good reasons to set up a self-managed super fund (SMSF), but getting early access to your super is not one of them.

The Australian Tax Office has become concerned at unscrupulous promoters claiming that you can set up an SMSF and then use your super to pay credit card debts, buy a house, or go on holiday.

Sadly, these schemes often target vulnerable people including those under financial stress or who are simply unaware of super laws and the limited circumstances where you can legally access your super.

Speaking at the Self Managed Super Fund Association’s 2024 national conference in February, ATO deputy commissioner Emma Rosenzweig said that while the vast majority of SMSFs are doing the right thing, the regulator is concerned at illegal early access schemes.

A significant new compliance program has been established by the ATO to detect and prevent illegal access to super.

Deputy commissioner Rosenzweig revealed an estimated $255 million had been illegally withdrawn from SMSFs in 2021, while another $170 million was protected by the ATO.

A wake-up call for trustees

The chief executive of the SMSF Association, Peter Burgess, said it was an issue that the sector had to confront in a meaningful way.

This is despite the amount released illegally being small as a percentage of total SMSF assets and the ATO’s figures showing the amount being illegally accessed had fallen.

The ATO is concerned that SMSFs are not seen as vehicles to access super illegally or to provide short-term financing or loans and was asking the accountants, tax agents and financial advisers at the SMSFA conference to help detect the illegal scheme promoters.

The enforcement program set up by the ATO indicates that newly established SMSFs were more likely to be involved than established funds, and around two-thirds of funds at risk related to “individuals entering the system with no genuine intent to run an SMSF,” Rosenzweig said.

The data collected by the ATO program covers the 2020 and 2021 years – which of course were impacted by COVID – so it will be interesting to see how big an impact the pandemic years had on people trying to access their super.

According to deputy commissioner Rosenzweig, illegal access schemes are often facilitated by promoters charging a large fee.

Taxes, penalties, and other risks

She gave the example of “Betty”, who was convinced by a promoter to illegally access around $100,000. However, after paying the promoter, taxes, and penalties Betty was left with $15,000 and lost most of her retirement savings.

The ATO also adds the warning that people who participate in these schemes potentially are at risk of identity theft, and that once you have illegally accessed your super you cannot return funds back to the super fund as it will be considered a new contribution.

SMSFs are typically set up by people looking to have more control over how their super is invested, and there are now more than 600,000 funds with about $870 billion invested in them.

But with that extra level of control comes serious responsibilities as a fund’s trustee.

There are legitimate reasons when you can legally access your super, such as being diagnosed with a terminal illness, severe financial hardship, or incapacity to work.

But strict conditions apply, so if an SMSF is being promoted as an easy way to access your super then be warned and check the conditions on the ATO’s website, speak to your existing super fund, or seek advice from an adviser with specialist qualifications in SMSFs.

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