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How to catch out an illegal super scheme

When a super scheme seems too good to be true, it often is. Many illegal super schemes are operating in Australia, so it is crucial to understand the characteristics of such schemes.

A popular illegal scheme is one whereby an individual is enticed by being told they can access their super early to pay off a credit card debt, go on a holiday, buy a car and so on. Generally, such schemes are illegal as superannuation can only be accessed early by meeting a condition of release.

Those promoting such schemes usually:
– Encourage individuals to transfer super from an existing super fund to an SMSF to access super before they are legally entitled to;
– Target those under financial pressure or who do not understand the super laws;
– Claim you can use your super for anything you want;
– Charge high fees and commissions, and risk losing some or all of the individuals super to them.

Unfortunately, participating in these schemes subject the affected individual to identity theft from the promoter of the scheme. Identity theft is when someone uses another person’s details to commit fraud or other crimes.

Individuals need to be aware that super is usually only accessible once the preservation age is reached and they stop working. The preservation age is currently 55 years old for those born before 1 July 1960 and 60 years old for those born after 30 June 1964.

Superannuation can only be accessed early in special circumstances such as severe financial hardship and for specific medical conditions. There are severe penalties for illegally accessing your super early.

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News

Ineligible downsizer contributions and how they are administered

August 12, 2019

When a downsizer contribution is ineligible, the fund must re-assess the amount in accordance with the Superannuation Industry (Supervision) Regulations 1994 and the trust deed. This is to determine if the amount can be retained as a non-concessional contribution.

Provided the trust deed allows so, the fund can return the contribution to the member or adjust the prior downsizing contributions to nil and report this amount as a non-concessional contribution when the member meets the age and work tests.

When a contribution can’t be returned or returned in full:
Members who no longer have a super interest with the fund, or an insufficient return amount, must have their contribution re-reported as non-concessional, even if the contribution was returned because the member did not meet the age/work tests. Some of the contribution may be an excess non-concessional contribution (ENCC). Regardless of the age of the member, if this is the case the member will receive an ENCC determination or when the fund can’t return the full amount. Members will continue to have access to all review rights under the ENCC scheme. Even if the member is in pension phase, the funds will still need to return an ineligible downsizer contribution if it cannot be accepted.

When a fund receives a release authority:
An amount released under these circumstances is treated as a super lump sum as it is a portion of the member’s super interest. Being in pension phase doesn’t prevent a fund from complying with the release authority although it may mean the full amount can’t be released, as the available balance may be lower than the amount stated in the release authority. Where the member’s available balance is lower than the release authority amount, the fund must release the maximum amount available.

The ATO monitors the rectification of this contribution reporting. Where funds don’t act within legislative timeframes, the Australian Prudential Regulation Authority (APRA) may be contacted.