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ATO warning on the COVID early release scheme

The ATO have recently warned that they will take action against individuals who attempt to game the system with regards to the ‘COVID early release of super’ provisions. Recall that these provisions enabled eligible super fund members to withdraw up to $10,000 prior to 30 June this year, and up to another $10,000 after 30 June (application period closes 31st December 2020).

So what do we mean by this ?

Essentially, the ATO are looking at the following sorts of situations:

  • Obtaining a tax advantage by withdrawing and then re-contributing
  • Creating a situation artificially to become eligible
  • Falsely applying where salary or employment has not changed

The ATO have stated that they have in fact halted some applications, and have reviewed circumstances even after applications have been processed due to discrepancies that they have found through the use of data matching from sources such as Single Touch Payroll (STP), income tax returns, super fund reporting and other third party data.

Quite simply, if an individual is not able to produce evidence and demonstrate their eligibility when asked for it, the ATO may decide that the amount withdrawn will become assessable income of the individual and will be taxed at their marginal rates.

The other kicker to all this is where an individual specifically looks to get a tax benefit, such as with a re-contribution strategy. For example, they withdraw $10,000 via this provision, but then go and contribute it straight back to their super fund for the purpose of getting a tax benefit – this is likely to attract attention and the ATO have said they may apply the anti-avoidance rule for income tax.

The bottom line is that this early release provision is there to help those financially struggling due to the COVID disruption to business and employment. Don’t get cute with it and try and gain a tax benefit through a concocted scheme, as the ATO are well aware of it and are well and truly watching.

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