Accessing your super – special circumstances
SMSFs have strict rules on when super monies can be withdrawn from the fund, most commonly when a member satisfies a form of retirement. However, special conditions apply should a member be diagnosed with a terminal illness who are looking to access their super benefits.
Terminal illness grounds
A terminal medical illness exists when:
- two registered medical practitioners have certified, jointly or separately, that the member suffers from an illness, or has incurred an injury, that is likely to result in the member’s death within 24 months of the date of certification
- at least one of the registered medical practitioners is a specialist practicing in an area related to the member’s illness or injury
- the certification period has not ended for each of the certificates
- the certification period is 24 months from the date of certification.
Upon satisfying the above criteria, then any super benefits accrued up until that point and during the certification period are deemed Unrestricted Non-preserved and can be paid out to the member as a lump sum payment.
The lump sum benefit is tax free regardless of the member’s age and the tax components, provided the member has the above medical certification confirming a terminal medical condition existed either at the time of payment or within 90 days of receiving the payment.
Other options in which super can be accessed when confronted with terminal illness include the following:
Severe financial hardship grounds
A member may be able to withdraw their super benefits on grounds of severe financial hardship if they have received Australian Government income support payments for a continuous period of 26 weeks and are unable to meet family living expenses.
Such payment will be made in the form of a lump sum and the maximum amount that can be paid is only one lump sum amount of up to $10,000 within a 12 month period.
Members with terminal illness may be able to access their super monies on compassionate grounds whereby you need to:
- pay for medical treatment for you or a dependant
- make a loan repayment to prevent you from losing your house
- modify your home or vehicle for the special needs of you or a dependant because of a severe disability
- pay for expenses associated with a death, funeral or burial.
A withdrawal on compassionate grounds can be paid as a lump sum only and maybe taxable if the recipient is below age 60 and their preservation age.
Permanent incapacity grounds
If a member is permanently incapacitated, they can access their super on these grounds.
To be permanently incapacitated, the fund’s trustee must be satisfied that the member has a physical or mental medical condition which will prevent them from ever working again in gainful employment in a job that they are qualified to do by education, training or experience. Such incapacity must be verified by at least two medical practitioners.
A permanent incapacity disability benefit can be taken either as a lump sum or pension payment. Depending on the option selected, different tax implications will arise.
When a member dies, their super benefits cannot be left in the super fund indefinitely and the trustee is required to pay this out either to their Legal Personal Representative or their dependants as soon as practicable.
Due to the recent super reforms from the May 2016 Federal Budget which have now been legislated, such grounds will be discussed in the article “Are you ready for the 1 July 2017 super changes? Part 3: Interaction of the $1.6m pension transfer cap and death benefit payments”.
Before a member seeks to access their super on the above grounds, they should firstly consult their fund’s trust deed to ensure they abide by the rules at all times.