As part of the Commonwealth Government’s Stimulus Packages they have allowed those impacted by COVID-19 to withdraw lump sums from their Superannuation. This can be done in two intervals, one lump sum of up to $10,000 before 30 June 2020 and another lump sum of up to $10,000 between the 1 July 2020 and the 24 September 2020.
Those who are eligible are anyone who is unemployed, on JobSeeker payments (not JobKeeper), Youth Allowance for Job Seekers, Parenting Payment, Special Benefit or Farm Household Allowance. Those who have been made redundant or had their working hours reduced by 20% or more are also eligible. Sole traders whose businesses have been suspended or reduced by 20% are also eligible. This withdrawal is tax free, but there are a number of considerations that you should be aware of.
Here is what you need to consider before deciding to withdraw your Super.
1. Current market investments
Depending on how your Super is currently invested you may have taken a hit in the value of your Super in recent months. Withdrawing your Super when the market is at a low ebb means you “lock in” those market losses without giving your Fund the chance to earn them back over time in a tax effective Super structure.
2. Impact on your retirement
Withdrawing Super now, even what may be a comparatively small amount, may have a big impact on your long term wealth and mean that you have significantly less in your Super in the future. Missing out on tax effective compounded earnings means that the $20,000 you withdraw now could have been worth significantly more in Super by the time you are ready to retire.
3. Other alternatives
Have you taken advantage of the other government assistant packages such as JobSeeker or JobKeeper? Many banks are offering short term loans or freezing of mortgage payments if you are experiencing financial hardship. Look to reduce any non-essential spending and cut costs.
If you are withdrawing Super from an account that will then be emptied you may find that this account is closed – and accordingly all of the insurances linked to that account are cancelled, such as Total and Permanent Disability Insurance or Life Insurance. Be aware of this possibility and consider the need to have other insurance in place if you are going to withdraw money from your Super.
5. Expert Advice
A number of important changes to Superannuation have been introduced this year. Make sure you are seeking professional advice.
Related: How will COVID-19 affect your End of Financial Year Tax return
Have you noticed our #EOFYTaxTips... here's one that relates to #Taxation
"If your business is affected by COVID-19 and you can’t afford to pay your employees Superannuation contribution, get in touch with the ATO within 28 days from the cut-off date to avoid penalties."