‘Dodgy advice’ drives ATO warning against early super withdrawals

The Australian Taxation Office (ATO) has issued a warning to consumers against withdrawing their superannuation early for non-critical medical or lifestyle treatments.

The warning comes as an influx of retirement savings withdrawal applications were found to have been submitted with the intention of using the funds for non-critical dental or cosmetic treatments and on the advice of health practitioners or other third-parties, well beyond the “compassionate grounds” provisions in place.

The ATO said it had become aware of “concerning behaviours” from health practitioners, who are responsible for preparing the medical reports used by patients to gain early access to their super for compassionate reasons.

These behaviours included:

• preparing inaccurate medical reports to support patients access their super where they are ineligible, such as for cosmetic purposes;
• preparing a medical report where the practitioner hasn’t performed a comprehensive consultation or examination of the patient;
• placing profits ahead of patient care, by recommending higher cost treatments, premium pricing or over-servicing without providing information on all available treatment options;
• collecting and using patients’ myGov details to submit applications, when individuals are required to submit applications themselves;
• charging fees to assist patients prepare or submit applications without being a registered tax agent; and
• encouraging or advising patients to access their super to pay for health treatments without an Australian Financial Services license.

ATO Deputy Commissioner, Emma Rosenzweig, advised consumers considering tapping into their superannuation early to keep in mind both the short and long-term impacts it can have on retirement savings.

“Superannuation is saving for your retirement. Your employer pays 12% super on top of your salary or wages as a long-term investment which grows over time and generally cannot be accessed until you reach preservation age or retire.

“Access to super on compassionate grounds is available in very limited circumstances for critical medical procedures and should only be considered as a last resort where all other options of paying for the eligible expenses have been exhausted.

“We have seen an increase in dodgy advice and misconceptions around when individuals can access their super early, and we want to make it clear that Australians should not be considering early access unless they are eligible and it is absolutely necessary for their circumstances.

“We are aware of various reports about the conduct of some health practitioners who support individuals to access their superannuation on compassionate grounds. When preparing medical reports to support an application, health practitioners must ensure they perform their role ethically and to the expected standard, whilst ensuring they don’t provide services they aren’t competent to provide or trained for.

“We are working with other regulators including the Australian Health Practitioner Regulation Agency (AHPRA) to address any inappropriate behaviour.”

The Super Members Council (SMC) has welcomed the warning from the ATO, citing a rise in the prevalence of “advertising” encouraging Australians to withdraw their super for non-essential reasons “without clear warnings about the long-term financial harm”.

According to modelling conducted by the SMC, a $20,000 withdrawal at the age of 30 could result in $93,000 less at retirement. The association said it is calling on the government and regulators to “take further action to strengthen consumer protections and crack down on advertising that seeks to lure Australians to withdraw super early and subvert the safeguards in super”, including:

• a ban on advertising that promotes early access to super for non-essential medical or dental treatments;
• a ban on third-party fees for facilitating compassionate release applications; and
• stronger, clearer consumer warnings about the impact of early withdrawals on retirement savings.

“These catastrophic financial losses particularly harm vulnerable groups of Australians,” the SMC said.

“We also call for much stronger transparency and data reporting on who is being targeted.”

The ATO confirmed that cosmetic treatments are not typically eligible for compassionate release of superannuation, as it must legally align with one of the following reasons:

• to treat a life-threatening illness or injury;
• to alleviate acute or chronic pain; or
• to alleviate acute or chronic mental illness.

“Applicants should be aware that submitting an application for health treatments that are not necessary for one of these reasons would be making a false or misleading statement to the Commissioner, which can attract severe penalties,” Rosenzweig said.

“Individuals who apply with the assistance of a third party need to review their application and the supporting documents before it is submitted, to ensure it is accurate. Where a third party acts inappropriately on an individual’s behalf, the individual can still be liable for any consequences, including penalties for making a false or misleading statement.

“Accessing super on compassionate grounds is only available in very limited circumstances where individuals are unable to pay for an eligible expense using any other means. It is not ‘free money’, and it will reduce the amount available in retirement and results in you paying more tax.

“Individuals who apply need to ensure they are eligible and that they provide accurate information and documents in their application. Where applications are approved, individuals should remember that they have declared in their application that they will use the money to pay for the approved purpose and keep receipts to support this.

“There can be significant consequences for people who attempt to inappropriately access their super, including severe penalties for making false or misleading statements or adjustments to their income tax return so they are required to pay additional tax.”