Beware tax office scrutiny on early super withdrawals

The tax office has to decide whether it wants to undertake a blitz on those who took early superannuation.

Some of the strongest government advocates of the early superannuation withdrawal plan are now jubilant. So far it has worked exactly as they planned.

And about 2.5 million Australians – around 40 per cent of whom are aged under 30 and a high proportion of whom are women – have taken advantage of the early release scheme to access their superannuation cash.

Most of those withdrawing were correctly warned that their actions would affect them adversely in retirement. But they didn’t care.

The Australian Taxation Office issued a series of bulletins warning Australians that they could face penalties if they did not qualify for early release. But again Australians didn’t care—they wanted their money now.

The government advocates of the scheme believe the ATO statements were just hot air. “It’s their money!” they privately exclaimed behind closed doors in Canberra.

The rules allow early withdrawal in a series of situations including redundancy after January 1; those on JobSeeker (but not JobKeeper), those receiving parenting payment and farm household allowances and the catch-all “your working hours were reduced by 20 per cent or more (including to zero)”.

As planned in Canberra that means the millions of Australians who have been working at home or on JobKeeper are able to assess their working hours with no-one really able to monitor them.

But those who have relied on this provision should take the trouble to prepare documentation that shows that they reduced their hours by 20 per cent.

There is no doubt that the almost $20 billion that has been a drawn from superannuation up to June 30, plus the likelihood of a similar figure in the current financial year, has been a major stimulant to the economy.

It’s true much of the money withdrawn by young people has been used for discretionary spending but it has also helped with the rent. And vast numbers of Australians of all ages on JobKeeper and JobSeeker are really concerned their incomes are set to be reduced from around September.

Many have deferred loan payment arrangements with their banks and those arrangements will also end around September. They need that superannuation.

Yet since Easter we have seen the most incredible boost in expenditure on household goods and improvements, which has boosted a whole series of Australian companies.

A lot of that money was spent via credit card. The Commonwealth Bank reports that credit card withdrawals in the last week or two have started to turn down and that may indicate that the boom will start to moderate.

There is no doubt that isolation drove the spending spree and the fact that it has been released in most parts of Australia, and the scare created by the Melbourne disaster, will take some of the pressure off the spending.

Meanwhile the tax office has to decide whether it wants to undertake a blitz to ravage those who took early superannuation. It has the power to declare the super payments income.

The message they will get from Canberra is that Australians were extracting their own money so leave them alone. But, as we are now seeing in JobKeeper, there are certain elements in the ATO who know they can override government policy.

One of the clear features of the scheme was that when you had withdrawn your superannuation, you could spend it wherever you wanted.

The ATO is suggesting that those who chose to reinvest it back in superannuation to gain tax deductions in exchange for fees were engaged in some form of tax rort. Yet that was exactly what the government planned. They knew a relatively few people would find it attractive to put the money back into superannuation so it was left as an option.

It’s important those who withdrew superannuation are ready should the ATO call. Even a witnessed diary is better than nothing. But just imagine the cost of contacting and monitoring around 2.5 million people when there are only token sums to be raised.