Self-managed superannuation funds (SMSFs) are typically established to fund the retirement of its members, meaning accessing benefits is generally only allowed when a member reaches their “preservation age” and meets one of the specified conditions of release.

What is my preservation age?

Preservation age depends on when a person was born (see following table).

“Preservation” means that money in superannuation must remain in the fund until one of the specified conditions of release (more below). Super benefits are allocated to three preservation categories – preserved, restricted non-preserved and unrestricted non-preserved benefits.

Preserved and restricted non-preserved benefits must be retained in superannuation until a condition of release is met (with the latter having an added release condition dealing with ceasing “gainful employment”, but it’s a fine distinction and you should check with this office).

These two categories basically transform into unrestricted non-preserved benefits when a condition of release is met. Unrestricted non-preserved benefits can be accessed, with no conditions of release having to be met. Unrestricted non-preserved benefits are generally from certain amounts funds accumulated before July 1, 1999, when the legislation to protect superannuation savings came in.

Cashing of benefits

Getting money from an SMSF is known as “cashing of benefits”, and can be paid as a lump sum or by starting a pension (and there are “restrictions” about which form of payment can be made, consult this office for more information). When a member can apply for the cashing of benefits depends on both preservation conditions and meeting a condition of release.

Legislation spells out in some instances the form that cashing of benefits must take, known as “cashing restrictions”, and an SMSF’s trust deed can also stipulate rules for paying benefits to members. All forms of payments are “voluntary” cashing of benefits (in that the member, once eligible, can decide to cash benefits) with the one exception being the death of a member, when benefits must be “compulsorily” cashed out.

Conditions of release

To withdraw benefits from your SMSF, you must satisfy the conditions outlined in your trust deed and the Tax Office’s conditions of release. The most common conditions of release for paying out benefits are:

• Retirement: Actual retirement depends on a person’s age and, for those less than 60 years of age, their future employment intentions. A retired member can’t access their preserved benefits before they reach their preservation age
• Transition to retirement (attaining preservation age): Members who are under the age of 65 and have reached preservation age, but remain gainfully employed on a full-time or part-time basis, may access their benefits as a “non-commutable income stream” (cannot be withdrawn as a lump sum)
• Attaining age 65: A member who reaches age 65 may cash their benefits at any time. There are no cashing restrictions (but it’s not compulsory to cash out benefits merely because they’ve reached a certain age).

There are a number of other circumstances in which benefits can be released:

• Incapacity: If, due to ill health, an SMSF member ceases gainful employment and is unlikely to regain work for which they are qualified, benefits may be cashed with no restrictions. If the end of gainful employment is due to a temporary state of health and is not a permanent condition, temporary incapacity benefits may be paid as a non-commutable income stream. This is generally up to the level of income received before the temporary incapacity, and includes salary support insurance or sick leave payments
• Severe financial hardship: Releasing benefits on these grounds depends on being able to show that a member cannot meet living expenses and has been on government income support for either 26 weeks or 39 weeks (depending on age). There are also restrictions on payment amounts, and advice is recommended
• Compassionate grounds: Until recently, the Australian Prudential Regulation Authority (APRA) had the discretion to release benefits on compassionate grounds, but the role has now been taken over by Medicare. Early release is generally done for things like treating life threatening illness, palliative care or other medical support, or to prevent foreclosure on the family home. The amount of benefits released is determined by the government, and must be made as a lump sum
• Temporary resident leaving the country: Eligible temporary resident visa holders who permanently leave Australia can apply to the Tax Office to have accumulated superannuation benefits paid out
• Terminal illness: On confirmation of diagnosis of a terminal medical condition, all benefits become unrestricted non-preserved and can be cashed out. Prescribed certification from medical practitioners will be required.

No early access

Setting up or using an SMSF to gain improper early access to superannuation benefits is illegal, and this area has become a focus for the Tax Office given the increasing number of SMSFs illegally accessing their benefits.

If a benefit is unlawfully released, the Tax Office may apply significant penalties to trustees, the SMSF itself and the recipient of the early released payments. Speak to this office before deciding to access your benefits.