Taxpayers stung by common ATO trap

 

 

Millions of Aussies scrambled to access their super early - but it could end up being a huge financial mistake.

Under the Super Early Release Scheme, which was introduced to help Aussies through the coronavirus crisis, eligible Australians were able to grab $10,000 from their super last financial year and a further $10,000 in 2020-21 as a result of the coronavirus crisis.

But the ATO has recently announced a new pilot program which is auditing a select number of Aussies who have cashed out their super to discover who was actually eligible - and who wasn't.

H&R Block director of tax communications Mark Chapman said if a large number were found to have broken the rules, then it was highly likely the ATO would roll out the audit on a much larger scale - increasing the risk of being penalised.

"The scheme allowed people to take money from their super if they meet certain eligibility criteria - you must either have been made redundant or be unemployed, or have had your working hours reduced by 20 per cent or your turnover drop by 20 per cent," he said.

"The ATO is now concerned some people may have accessed the scheme who didn't meet the criteria, as it was done on a self-assessment basis.

"Taxpayers didn't need to provide evidence at the time they put their applications in, and the ATO is now going back and looking for people who may have inadvertently or otherwise got access to super they weren't entitled to."

Mr Chapman said the ATO had been upfront about the fact that it wasn't checking applications at the time they were entered as the priority had been to get money into people's accounts as quickly as possible to stave off a looming financial crisis.

But he said the ATO was well known for acting quickly and checking later, and that those hasty withdrawals may now come back to bite many of us.

"They didn't want to hold up payments but now - as is usually the case with the ATO - they are going back and checking retrospectively to see if people were eligible," he said.

Mr Chapman explained that 500 people were being audited under the pilot and if any red flags were raised, they would have to provide proof they were originally entitled to the withdrawal.

Rule-breakers could be hit with a penalty double whammy. Picture: iStock
Rule-breakers could be hit with a penalty double whammy. Picture: iStock


In the "best case scenario", someone who innocently did the wrong thing will be taxed on the amount they took out of their super.

"They will have to include it as income on their tax return and then pay tax on it if they took it out inadvertently because they made a mistake and didn't understand the rules," he said.

"But if they deliberately flouted the rules when they knew they weren't eligible, as well as paying tax on it they could also have a penalty of up to $12,600.

"So if you withdrew $10,000 and then have to pay tax plus $12,600, it could work out to be very expensive."

However, what many people failed to realise was that the harsh $12,600 penalty could be applied to each transaction - so if you incorrectly withdrew $10,000 during both financial years, you could be hit with a penalty double whammy.

The ATO recently confirmed to NCA Newswire that fund members who lodged two applications for early withdrawals without meeting the scheme's requirements could face separate financial penalties of up to $12,600 on each respective claim - meaning double dippers could be stung by a maximum penalty of $25,200.

"It's the kind of thing you should have discussed with your tax agent in the first place - they would have been able to assess whether you were eligible or not," Mr Chapman said.

"Unfortunately, a lot of people rushed into this because of financial concerns - maybe they were expecting to lose their job but didn't, or to have their hours cut which didn't happen - so there's a group of people who have made mistakes.

"People also didn't understand how the ATO works - it has a system of processing first and asking questions later - so I can understand why some people might be a bit disgruntled, but having said that, if they had done things differently and audited applications as they came in it would have taken forever."

And in an added blow, if you've made a mistake, there's no quick fix, with Mr Chapman saying taxpayers couldn't simply pop the cash back into their super and "forget about it".

"Unfortunately that's not an option - once the money is out, it's out, so probably the best thing to do is talk to your tax agent to get their advice on whether you have a problem or not," he said.

 

Originally published as Taxpayers stung by common ATO trap



Skylift brought from Queensland to help at cathedral fire

Premium Content Skylift brought from Queensland to help at cathedral fire

Lismore Cathedral was set ablaze in early on Friday morning

SUSPICIOUS: Lismore cathedral fire was deliberately lit

Premium Content SUSPICIOUS: Lismore cathedral fire was deliberately lit

Police are investigating the blaze at St Carthage's Cathedral

Council calls for ‘visionary approach’ to help farmers

Premium Content Council calls for ‘visionary approach’ to help farmers

“WE can’t expect people to keep coping. We have to make our rural lands and...