Can I Withdraw My Super Early? The Conditions Explained

Superannuation in Australia serves as a long-term savings vehicle, primarily designed to fund an individual’s retirement. Employers contribute a percentage of an employee’s earnings into a superannuation fund, building a nest egg over their working life. The general principle governing superannuation is preservation, which means these funds are held until an individual reaches their preservation age and meets specific retirement conditions. This framework aims to ensure financial security during retirement.

Conditions for Early Release

Circumstances exist where accessing superannuation prior to retirement age is permissible under Australian law. These limited conditions are designed to provide financial relief in situations of significant hardship or specific life events. Each condition carries distinct eligibility criteria and requires specific forms of evidence to support an application.

Compassionate Grounds

Accessing superannuation on compassionate grounds is a provision for individuals facing severe personal or financial difficulties. This can include funds for medical treatment or transport for oneself or a dependant, particularly for life-threatening illnesses or to alleviate pain. Funds may also be released for palliative care expenses, or to cover the costs associated with the death, funeral, or burial of a dependant.

Modifications to a home or vehicle to accommodate a severe disability for the applicant or a dependant also fall under compassionate grounds. Another important category is preventing the foreclosure or forced sale of a home, where super funds can be used to make mortgage or council rate payments. To qualify, the expense must be unpaid, and the applicant must demonstrate an inability to pay without accessing super, typically supported by invoices or quotes.

Severe Financial Hardship

Individuals experiencing severe financial hardship may be able to withdraw a limited amount from their superannuation. For those under their preservation age plus 39 weeks, eligibility requires continuous receipt of eligible government income support payments for 26 weeks or more. Additionally, the applicant must demonstrate an inability to meet reasonable and immediate family living expenses.

Once an individual reaches their preservation age plus 39 weeks, eligibility requires having received eligible government income support payments for a cumulative period of 39 weeks since reaching preservation age. The applicant must also not be gainfully employed at the time of application. The minimum withdrawal amount for severe financial hardship is $1,000, with a maximum of $10,000, and only one such withdrawal is permitted within a 12-month period for those under preservation age.

Terminal Medical Condition

A person diagnosed with a terminal medical condition may access their superannuation as a lump sum. To meet this condition, two registered medical practitioners must certify, jointly or separately, that the illness or injury is likely to result in death within a 24-month period from the date of certification. One of these medical practitioners must be a specialist practicing in an area related to the illness or injury.

Temporary or Permanent Incapacity

Superannuation can be accessed due to temporary or permanent incapacity, which refers to a physical or mental medical condition impacting an individual’s ability to work. Temporary incapacity allows for an income stream payment from super-linked insurance benefits while the individual is unable to work or can only work reduced hours. Permanent incapacity allows access to super if the condition is likely to prevent the individual from ever working again in a job for which they are reasonably qualified.

Departing Australia Superannuation Payment (DASP)

Temporary residents who have worked in Australia and accumulated superannuation may be eligible for a Departing Australia Superannuation Payment (DASP) after permanently leaving the country. This payment applies to individuals who held a temporary resident visa (excluding certain subclasses) that has ceased to be in effect, and who have departed Australia without holding any other active Australian visa. Australian or New Zealand citizens and Australian permanent residents are not eligible for a DASP.

First Home Super Saver (FHSS) Scheme

The First Home Super Saver (FHSS) Scheme is not a direct early withdrawal but a mechanism allowing eligible first-time homebuyers to save for a home deposit within their superannuation fund. Individuals can make voluntary contributions, both before and after tax, into their super account for this purpose. Up to $15,000 of eligible contributions can be made in any one financial year, with a total cap of $50,000 across all years. The scheme offers tax concessions on these contributions, providing a more tax-effective way to save compared to a standard savings account.

Application Process

The procedural steps for applying for early superannuation release vary depending on the specific condition. Understanding whether to apply through the Australian Taxation Office (ATO) or directly with a superannuation fund streamlines the process.

ATO-Managed Applications

Applications for compassionate grounds and the First Home Super Saver (FHSS) Scheme are managed through the ATO. Individuals initiate these applications via ATO online services.

For ATO-managed applications, it is necessary to upload digital copies of all required supporting evidence, such as invoices, medical reports, or financial statements. The ATO then assesses the application, which can take several business days, and communicates its decision through the myGov inbox. If approved, the ATO will forward the approval to the super fund, and the applicant must then contact their fund to arrange the release of funds.

Fund-Managed Applications

In contrast, applications for severe financial hardship, terminal medical conditions, and temporary or permanent incapacity are made directly to the individual’s superannuation fund. For severe financial hardship, the super fund assesses eligibility and may request evidence of government income support payments from Services Australia. For terminal illness or incapacity, applicants contact their super fund to obtain specific forms and submit the required medical certifications and other documentation.

FHSS Scheme Specific Process

For the FHSS scheme, after making voluntary contributions, individuals first apply to the ATO for an FHSS determination to confirm their eligible withdrawal amount. Once the determination is received, a separate request for release is submitted to the ATO, which then instructs the super fund to release the funds. The ATO then deducts any applicable tax and sends the remaining amount to the applicant.

Taxation of Early Release

Early release payments from superannuation are subject to taxation, with specific rules and rates depending on the reason for withdrawal and the individual’s age. The tax treatment differentiates between tax-free and taxable components of superannuation.

General Tax Rules

Withdrawals on compassionate grounds and due to severe financial hardship are taxed as normal super lump sums. If the individual is under 60 years old, these payments are taxed at a rate between 17% and 22%, inclusive of the Medicare Levy. For individuals aged 60 or older, these lump sum payments are tax-free, unless they include an untaxed element.

Specific Condition Tax Rules

Payments made due to a terminal medical condition are tax-free, provided the withdrawal occurs within 24 months of the medical certification. For temporary or permanent incapacity payments, the tax treatment can vary. Income stream payments for temporary incapacity are taxed as a super income stream, while lump sum payments for permanent incapacity may have both tax-free and taxable components.

DASP Tax

The Departing Australia Superannuation Payment (DASP) is subject to specific tax rates, which are withheld from the payment before it is made. The tax rate depends on the visa type held, with a higher rate applying to working holiday maker (WHM) visa holders.

FHSS Tax

Amounts released under the First Home Super Saver (FHSS) Scheme are assessed as income in the tax year the release is requested. These assessable amounts benefit from a 30% non-refundable tax offset. This means that while the released amount is included in assessable income, the tax offset reduces the overall tax liability on those funds.