Superannuation is a long-term savings for retirement and generally the benefit is fully preserved until you retire after your preservation age. That means you cannot touch your superannuation unless you meet one of the conditions of release as detailed in one of my previous articles (see Conditions of release – when can you access your superannuation).
However, in limited circumstances, you can apply to the Department of Human Services (DHS) to seek their approval for release on compassionate grounds. DHS is responsible for assessing and providing approval for your superannuation fund to release the benefits. Your superannuation fund cannot release your benefits without being approved by DHS first.
You can apply to DHS for a compassionate ground release on one or more of the following specified grounds:
Medical/ Dental treatment: to help pay for medical or dental treatment costs for you or your dependant.
Medical transport: to help pay for transport costs to and from medical or dental treatment for you or your dependant.
Modifications to your home or motor vehicle: to help pay for the cost of modifications to your home or motor vehicle for your needs or the needs of your dependant due to disability.
Mortgage assistance: to help pay for your mortgage to prevent your lender from selling your principal place of residence.
Terminal medical condition: to provide care for a person who suffers terminal medical condition whether for you or your dependant.
Funeral expenses: to help pay for funeral or burial expenses associated with the death of your dependant.
To apply for a release on one or more of the above grounds, you need to complete the application applicable to the ground for which you apply and this can be downloaded from the DHS website or you can contact them for it. You also need to provide supporting documentary evidence to show your eligibility as well as certified proof of identity documents.
When DHS approves your application, they will send the approval letter to you detailing the amount approved and any other payment details. If you apply on the ground of mortgage assistance, your superannuation fund will make the payment directly to your lender.
For your superannuation fund to release the approved benefit, you need to send the original approval letter to them. Depends on your superannuation fund, you may also need to complete your fund’s application for payment and provide them with another set of certified proof of identity documents.
How your benefit will be taxed
If you’re 60 years or older, your superannuation benefit will not be taxed.
Between the ages of 55 and 59, the amount withdrawn from the tax-free component will not be taxed. The amount withdrawn from the taxable component will not be taxed if it is under the tax-free threshold of $175,000 for 2013 financial year. However, the amount above the threshold will be taxed at 16.5%. I am not suggesting that DHS would release such as large sum as they would only consider releasing whatever amount they think you need applicable to the specified ground.
If you’re under 55, you’ll be taxed heavily. As mentioned above, the amount withdrawn from the tax-free component is always taxed free. However, the taxable component will be taxed at 21.5%. There is no threshold if you’re under 55.
If you have amounts in both tax-free and taxable components (check your Annual Statement), the amount will be withdrawn proportionately. You cannot choose to withdraw from the tax-free component only in order to avoid paying taxes.
For more information about early release of your superannuation benefits on compassionate grounds, contact the Department of Human Service on 1300 131 060 between 9.00 am and 5.00 pm or visit: http://www.humanservices.gov.au/customer/services/centrelink/early-release-of-superannuation