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The Australian Taxation Office (ATO) has warned it will investigate people using COVID 19 early superannuation release for tax avoidance purposes.

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The Australian Taxation Office (ATO) has warned it will investigate people using COVID 19 early superannuation release for tax avoidance.

According to the ATO, there are two main methods used to take advantage of the tax benefits of this COVID 19 assistance scheme including early access to superannuation, followed by making concessional contributions back into the super fund and, claiming a deduction for those re-contributions to achieve a lower taxable income.

For example, a person applied to release $10,000 during the COVID 19 early super release scheme. When they received the money, they contributed it back into their superannuation fund within a short period of time.  They then notified the fund of the intention to claim tax deduction on superannuation contributions and in August 2020, claimed a $10,000 tax deduction in their income tax return to reduce the taxable income.

Another example is of a person with an annual salary of $100,000, who accessed $10,000 tax-free for the scheme and then salary sacrificed the funds into their super account. In this example the $10,000 was taxed at the 15% tax rate, instead of the marginal tax rate.

The early release super scheme was designed by the Federal Government to assist people with the burden of unemployment or reduced working hours, to ensure they had the funds to pay bills and buy food. However, the ATO has now uncovered instances of taxpayers who used the scheme for personal interest or to avoid tax. In these cases, the ATO can stop applications, to prevent money being released and, can issue penalties of up to $12,600 for any false and misleading claims.

If you have any questions or need advice and clarity specific to your situation, feel free to contact Semmens & Co on 03 8320 0320 for a free consultation.