Professionals / SMSF / SMSF Compliance / Trustee education

Unlocking a condition of release

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One of superannuation’s great misconceptions is that benefits once somebody reaches age 60 can be taken tax-free. Well, it is correct (from a tax perspective), but what many people tend to forget (or not understand) is that a member must also satisfy the superannuation law requirements to access these benefits.  This is known as meeting a “condition of release”.

There are different rules for different ages in order to meet a condition of release and effectively “unlock” a member’s benefits.  By meeting a condition of release, it is effectively moving preserved benefits to unrestricted non-preserved benefits (and can access their benefits).

Superannuation law specifies that preserved and restricted non-preserved benefits may be able to be paid out for any of the following reasons:

  • Retirement
  • Attaining age 65 or more
  • Terminating gainful employment after 1 July 1997– benefits less than $200
  • Terminating gainful employment – benefits of $200 or more
  • Permanent incapacity
  • Temporary incapacity
  • Severe financial hardship
  • Compassionate grounds
  • Temporary residents departing Australia
  • Attaining preservation age (transition to retirement)
  • Where a member has lost super and the benefit is less than $200.

For those heading towards retirement, it is important to understand the different rules relating to meeting a condition of release from age 55.  Let’s take a look at these further:

Age

Requirement to meet a condition of release

55 – 59

Need to have retired and satisfy the SMSF trustees that you do not intend to seek gainful employment again (or work more than 10 hours per week as defined as part-time employment).

60 – 64

Retirement or terminate employment with your employer. If you have more than one job, then cessation of one of these positions.

65 and over

There are no longer any cashing restrictions (regardless of an individual’s employment status)

It is important to note with the condition of release requirements for someone between age 55 to 59, that it is the intent at the time of the member regarding their retirement. It is not uncommon that fund members intend to retire and then subsequently at some future point re-enter the workforce. Where a member goes back to work say 2 years later, their benefits up to that point are unrestricted (i.e. may be an account based pension), with future contributions then becoming preserved until another condition of release is met.

You will note from the bullet points above, that commencing a transition to retirement income stream (TRIS) meets a condition of release.  Whilst this is the case, it does not shift a member’s benefits to unrestricted non-preserved as they have not met a ‘cashing condition’.  There are still restrictions on the member being able to “cash” these benefits until such a time that they have met one of the conditions stated in the table.

Note: When a member is drawing a TRIS, the benefits must be drawn in a cashing order of  (1st) unrestricted non-preserved benefits, (2nd) restricted non-preserved benefits, and (3rd) preserved benefits.

Further information regarding some of the other condition of release requirements can be found on the ATO website, http://www.ato.gov.au/super/content.asp?doc=/content/46427.htm&page=20&H20

Comments

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7 thoughts on “Unlocking a condition of release

  1. Your comments on ‘Condition of Release’ age 60 to 65, resigning only on one of the job if one has more than one.
    Question : Technically should one take up a part-time job (as a second job) at age 59 1/2 and resigning at 60 but continue with the main job does this satisfy a condition of release ? and if so what portion of one’s super is accessible?

    • Hi Tim,
      Thanks for your comment… If you took up a second job and then ceased this once having reached 60 years of age (up to 65), this would satisfy a condition of release and would unrestrict ALL preserved and restricted non-preserved benefits in your account at that point of time. Any future contributions and earnings into the fund would continue to be preserved however, until the ‘next’ condition of release has been met.
      Cheers,
      Aaron

    • Regarding Change in Work arrangements after 60

      Does the second job need to be PAYE with receipts and income tax returns as evidence?
      Would someone retiring on a part time cash in hand job count towards trigerring a condition of release?

      • Hi Tim,

        The condition of release ‘trigger’ after turning age 60 is simply ceasing an employment arrangement (or retirement). It doesn’t need to be a second job, although cessation of one job and retaining the other post 60 will unrestrict a member’s benefit. ‘Gainfully employed’ is defined as at least part-time employment, which is 10 or more hours per week. This could be as a salaried employee or self-employed, however there is an expectation of remuneration (reward for effort).

        Therefore, the issue for the condition of release is not the ‘cash’ job, but what the individual was doing beforehand? The fact that you used the word ‘retiring’ is suggesting they would qualify through the ‘retirement’ condition contained within Schedule 1 of the SIS Regulations.

        Regards,
        Aaron

      • Hi Tim,

        Where the individual is 60 years and over, the law simply refers to cessation of employment. No minimum duration is specified with this condition. Whilst the same can be said with the retirement condition, it is widely acknowledged that retiring on Friday and starting work again on Monday would not satisfy the Commissioner. In saying that though, you can resign from one employer and start with a new employer, and thereby meet this requirement to unrestrict benefits post age 60.

        Cheers,
        Aaron

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