It is now official – the Australian Tax Office (ATO) will be moving against those who withdrew up to $20,000 from their superannuation if they didn’t qualify.
What is still not known is how strictly the ATO will be enforce the rules, with options ranging all the way from charging tax on withdrawals through to enforcing tough fines.
The enforcement picture is clouded further by Melbourne’s strict stage four lockdown and the extension of the second super withdrawal period until the end of the year.
Jeremy Hirschhorn, the ATO’s second commissioner of client engagement, told the Senate COVID-19 inquiry that workers who were ineligible to access their superannuation could be taxed or fined up to $12,600 for making misleading statements.
Payments may be taxed or taxpayers hit with $12,600 fines
He confirmed that the ATO was using a pilot program to track down workers who may have been ineligible to withdraw superannuation.
To be eligible for the scheme, people were meant to have been made redundant, suffered a 20 per cent cut in working hours, become unemployed or be eligible for welfare assistance such as JobSeeker, Youth Allowance or Parenting Payment.
However, the ATO did not do any preliminary checks on processing the payments, trusting that taxpayers were being honest in their applications and then reviewing salary data further down the track.
ATO officials told the Senate COVID-19 inquiry that those who inappropriately accessed super could be taxed on withdrawals or face penalties of up to $12,600 for misleading statements.
The move comes as the popularity of the program to release super funds to pay living expenses due to the pandemic reaches new highs.
Super withdrawals very popular
Treasury has confirmed that $32 billion of superannuation had been released to 2.46 million people and this figure is expected to grow to $42 billion by December – $13 billion more than first forecast by the Federal Government back in March.
Workers were eligible to withdraw $10,000 in the 2019-20 financial year and again in 2020-21 if, on their own assessment, they were “adversely financially affected by Covid-19”.
Mr Hirschhorn told the inquiry that self-assessment “relies on the assumption most Australians are honest” but after the withdrawals, information such as single-touch payroll data had suggested some workers “did not meet the criteria”.
The ATO has written to hundreds of people it does not believe are eligible under a pilot program to “work out the level of ineligibility” and design a compliance program.
“We will not be forcing people to put money back in their superannuation,” Hirschhorn said.
ATO will consider a range of actions
He said the ATO would consider a “range of possible outcomes” – from taking no action where workers “voluntarily disclose” that they had withdrawn funds due to an “honest mistake” about their eligibility, up to imposing penalties of $12,600 for misleading statements.
The ATO can also withdraw the usual declaration that funds are tax-free, forcing those who inappropriately accessed super to pay tax at their marginal rate.
At this stage no action to fine or apply tax payments to withdrawals have been made.
Under the hurriedly assembled super withdrawal program, the ATO did not check eligibility before releasing super to ensure prompt payments to people in need.
Some super not wisely spent
Analysis by illion and AlphaBeta – part of Accenture – showed that 40% of Australians who had withdrawn super early had either suffered no decrease in income or had received government benefits to cover any loss.
They also found that the money was not primarily used to pay down loans, with two thirds spent on “discretionary items” including clothing, furniture and alcohol, with more than 10% spent on gambling.
Others have used the scheme to put money in offset accounts to reduce mortgage interest payments.
Prime Minister Scott Morrison has been quick to defend those who withdrew money under the program.
He said the expansion of the existing hardship rules for withdrawing super were a welcome way for people to cope with the extra financial pressures of the pandemic.
PM said most people have been sensible
Mr Morrison said the “overwhelming majority” of people had used it to “restructure their personal balance sheets” such as paying down mortgages, which is a “good opportunity” to decrease risk and improve financial resilience.
“So no, I don’t have those concerns, but I think it is very important to note, we are not a government that tells people how they should spend their own money.”
Labor’s shadow assistant treasurer, Stephen Jones, said the $13bn blowout in the program “will cost taxpayers and retirees” because some 560,000 superannuation accounts had now been cleaned out to a zero balance.
He said a 25-year-old worker could lose “as much as $100,000 in retirement income” and argued people “should be supported so that they don’t have to make this difficult choice” of accessing their retirement savings.