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In recent years, the Australian Taxation Office (ATO) has been increasingly vigilant about the early release of superannuation funds, particularly in relation to self-managed superannuation funds (SMSFs). The ATO has revealed that over $635 million was illegally accessed from SMSFs over two years.

The outgoing Commissioner of Taxation, Chris Jordan, announced this crackdown during an address to the National Press Club in Canberra. He revealed that in 2020, over $380 million was illegally accessed from SMSFs, and in 2021, the figure was $255 million.

The ATO’s stance is clear: “Super is for retirement.” While there are rules in place for legal access to super in cases of genuine hardship, the misuse of these funds needs to stop.

Emma Rosenzweig, ATO deputy commissioner, echoed these sentiments at the SMSF Association in Brisbane. She described illegal early superannuation release as one of the ATO’s greatest concerns.

To address this issue, the ATO has undertaken a significant new program to estimate the amount of money illegally withdrawn. The program found that for the 2020 year, $380 million of super was illegally withdrawn by trustees of SMSFs. This figure would have been half a billion dollars if the ATO hadn’t protected over $125 million from leaving the system as part of their new registrant risk reviews.

In the 2021 year, the ATO estimated that over $255 million of super was illegally accessed, with almost $170 million additionally protected at registration.

These figures highlight the scale of the issue. Over two years, a total of $635 million of superannuation savings left the system illegally through SMSFs. This does not include prohibited loans, another way trustees inappropriately provide financial benefits to members or related parties.

In the 2020 and 2021 years, the ATO found that SMSFs entered into over $200 million in prohibited loans each year. However, it is encouraging to note that over 75% of these loans have been repaid.

The ATO’s findings indicate that newly established SMSFs were more likely to engage in this behaviour compared to established funds. Around two-thirds of the $930 million at risk over these two years appears to relate to individuals entering the system with no genuine intent to run an SMSF.

Accounting for $800 billion of the $3.4 trillion retirement pool, SMSFs are an integral part of the retirement system. However, the misuse of these funds for illegal early access or short-term finance is a significant concern.

The ATO’s crackdown serves as a wake-up call for all involved in the superannuation industry. It underscores the importance of ensuring that SMSFs are not used as a vehicle to access super illegally or to provide short-term finance.

The ATO’s efforts to protect superannuation savings are commendable. However, it is also crucial for individuals, financial advisors, and SMSF trustees to understand the rules and responsibilities associated with SMSFs. After all, super is for retirement, and it’s up to all of us to ensure it stays that way.

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