Condition of release
Severe financial hardship
7.9 Severe financial hardship
Severe financial hardship in the case of a person younger than their preservation age
A member may apply to the trustee of their superannuation fund to release superannuation benefits due to severe financial hardship. Only one application can be made to the trustee in any 12 month period.
A member is considered to be in severe financial hardship where the trustee of the superannuation fund is satisfied based on written evidence provided by a Commonwealth department or agency administering the income support payment that the member:
- receives eligible government income support payments continuously for 26 weeks
- still receives government income support on the date of the written evidence, and
- the member is unable to meet reasonable and immediate family living expenses.
The written evidence cannot be dated more than 21 days before the date that the member applies to release their superannuation benefits under severe financial hardship.
Where the trustee is satisfied the member meets the definition of severe financial hardship, a single lump payment between $1,000 and $10,000 can be released from the superannuation fund, or the balance of the superannuation fund, if this is less than $1,000. The amount released cannot exceed the amount required to meet reasonable and immediate living expenses.
Severe financial hardship in the case of a person who has reached their preservation age
Where a member:
- has attained preservation age plus 39 weeks,
- provides written evidence provided by a Commonwealth department or agency that the member receives Commonwealth income support payments for a cumulative period of 39 weeks or more since attaining preservation age, and
- is not gainfully employed for at least 10 hours per week at the time of making the application
Unable to meet reasonable and immediate family living expenses
A member or family cannot meet reasonable and immediate living expenses where the:
- income of the individual (or family) cannot meet everyday living expenses; and
- assets (excluded the family home) of the individual (or family) cannot be reasonably used or sold to cover the expenses.
Immediate living expenses are those that are due and payable at the time of making the application for releasing the superannuation benefits. In certain circumstances, this may be extended to amounts that will be due shortly e.g. money to pay rent or essential household repairs.
There are no special tax rates for super withdrawal because of severe financial hardship. It is paid and taxed as a normal super lump sum. So, if a member is under 60 years, this is generally taxed between 17% and 22%. If the member is older than 60 years, there is no tax.
The test for 'severe financial hardship' is contained in SIS Regulation 6.01(5). This rule is designed to be strict and objective. It ensures that early access to superannuation is available only as a last resort if the income support system - which is the preferred way of delivering financial support to Australians in need.
Commonwealth income support payments
Qualifying payments are generally designed to provide financial support to people experiencing financial hardship because of an unexpected life event such as disability or loss of employment. ABSTUDY and some types of income support payments such as Austudy and Youth Allowance are not considered to be qualifying payments. Recipients of ABSTUDY, Austudy and full-time students on Youth Allowance make a voluntary decision to pursue a course of study having regard to both the immediate and future financial consequences of doing so.
The trustee of the superannuation fund must determine whether to release superannuation benefit on the basis of serious financial hardship where the member meets the objective test (regarding qualifying Commonwealth income support payments) and that 'the person is unable to meet reasonable and immediate family living expenses'. The regulations do not prescribe the matters that the trustee is required to take into account in determining the latter.
Source: Early release of superannuation benefits - Under compassionate and financial hardship grounds and for victims of crime compensation
This technical resource is intended for the use of financial advisers only. It is current as at the date of publication but may be subject to change. This publication has been prepared without taking into account a potential investor's objectives, financial situation, needs or objectives. Before making a recommendation based on this material, you should consider its appropriateness based on the client's objectives, financial situation and needs. Rainmaker Group is not a registered tax agent under the Tax Agent Services Act 2009. Your client should refer to a registered tax agent before relying on information published herein that may impact their tax obligations, liabilities or entitlements.
Last modified: Monday, July 12, 2021