September 21st, 2009 | Consumer News, Financial Planning News
There is currently a range of illegal schemes and plans that exist that are offering unsuspecting taxpayers access to their superannuation savings before retirement. The promoters of these plans will tell you that they are able to access your super savings for reasons such as paying off debt, buying a house or car or even going on a holiday. These schemes, as enticing as they may seem, are illegal and heavy penalties apply if you decide to participate in them.
It is extremely important to understand that super savings cannot be accessed prior to retirement, except in some very limited and highly restricted circumstances. These specific circumstances are usually related to specific medical conditions or when the individual/s are experiencing severe financial hardship.
The promoters of these illegal super schemes encourage you to transfer super savings from your existing fund to a Self Managed Super Fund (SMSF) so that you can access and utilise your super savings before you retire. They offer to make it easy for you to complete the transfer in return for a substantial fee.
These promoters will often target people who are under financial pressure or who do not have a clear understanding of superannuation laws. Most of these illegal schemes require you to roll over your savings from your large, established super fund into a SMSF. Getting involved with one of these schemes by either offering or accepting the transaction constitutes illegal activity and is treated as such by authorities. Not only is it illegal but those who chose to participate in these schemes also leave themselves vulnerable to the possibility of losing some or all of their super savings to the criminals but also exposing themselves to possible identity fraud.
Superannuation savings are intended to provide you with financial security and support when you retire. As mentioned previously early access to the funds is not permitted and if found to do so illegally there are hefty penalties to pay. Penalties vary depending on the party at fault and an outline of these follows below.
Penalties for an individual/ a member of a super fund
Any money you withdraw from a super fund will be included as income in your tax return and will be fully assessed at your marginal tax rate, plus the Medicare levy. Any fee or commission that a promoter takes from your super savings when they help you to roll over your super or set up an SMSF cannot be claimed as a deduction. If you do not include withdrawn super amounts in your tax return then you may be required to pay interest and penalties on the additional tax that you owe.
Penalties for a trustee
As a trustee of the super fund, any super that you illegally access forms part of your assessable income and you are likely to face higher taxes and additional penalties as a result.
Trustees can also be disqualified if and when they allow super savings to be accessed early. Disqualified persons are then unable to operate as a trustee of an SMSF. As a trustee, if you knowingly allow illegal access of super savings, you may be liable for penalties of up to $220,000 and/or jail terms of up to five years, or fines of up to $1.1 million for corporate trustees.
Penalties for a SMSF
An SMSF used to assist the illegal release of super savings may be treated as non-complying and as a result the fund’s income will be taxed at the highest marginal tax rate. The fund’s income may include the value of its assets accumulated before the fund became non-complying and would result in even more considerable financial penalties.
Penalties for a promoter
Any identified promoters of these illegal schemes will be assessed on all the fees and commissions that are received for arranging the early release of super savings and for setting up SMSFs. Additionally, if these amounts have not been included in the promoter’s tax return, penalties and a general interest charge will also be applied to any tax shortfall.
Promoters may also be prosecuted by the Australian Tax Office (ATO) and/or the Australian Securities and Investments Commission (ASIC), as these activities may involve breaches of the:
- Superannuation Industry (Supervision) Act 1993
- Corporations Act 2001
- Australian Securities and Investments Commission Act 2001
Possible breaches may include misleading or deceptive conduct and the provision of financial product advice without an Australian Financial Services Licence (AFSL).
Both civil and criminal penalties, including significant fines and terms of imprisonment, may be imposed for these and other related breaches of the law.
To reiterate, superannuation savings are intended to provide you with financial security in your retirement and it is illegal for anyone, including yourself, to access and orchestrate the use of these funds before you reach eligible retirement age.
Here at The Quinn Group our experienced team of Financial Planners, Accountants and Lawyers can provide you with the total solution and assist you with all your superannuation needs. For advice about legally accessing your superannuation savings, contact Peter Quinn by submitting an online enquiry or calling us on +61 2 9580 9166 to book an obligation free appointment.
The information in this document does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. It is important that your personal circumstances are taken into account before making any financial decision and it is recommended that you seek assistance from your financial adviser.