Difficult for Small Businesses to access superannuation during financial hardship
To access your superannuation, prior to retirement, under the ATO’s financial hardship provisions you must satisfy the following conditions;
1. you cannot meet your day to day family living expenses, and
2. you have been receiving government income support for the past 26 weeks, and
3. you must be receiving government income support at the time of the requesting hardship support from the trustee of your superannuation fund.
If you satisfy all the above, the maximum amount you can get access to is $10,000. Furthermore, the financial hardship payment can only be made once per year from your superannuation fund.
If you are a business owner, you are probably committed to paying the salary and wages of staff, paying rent, electricity and other utility bills, employee entitlements such as sick leave, accrued annual leave, superannuation, workers compensation insurance premiums along with other insurances, just to name a few commitments. During an extended poor trading period such as a recession or a Global Financial Crisis you continue to incur your costs, as you cannot simply exit the business. Your business revenue may be in decline but your expenses continue, and in many cases are subject to penalty interest and charges if they are paid late.
What could solve this temporary problem is an injection of capital from your superannuation fund, say $20,000 to $30,000. However, to qualify for only $10,000 you would have to be on government support for the last 6 months. If you qualify for government support now you will have to wait for 6 months before you can apply for a release of capital from your superannuation fund. Clearly, this is impractical.
What makes this situation worse is that if the business owner is deemed insolvent and cannot pay their mortgage, what happens to their home, what happens if they default on the mortgage, does the bank repossess the home?
So you have a situation where the business owner can lose his business and family assets all for the sake of not being able to access a small component of the funds from his superannuation fund.
While superannuation is an excellent planning and investment vehicle, the above highlights the importance of holding some investments outside of your superannuation.
Should you have any questions in regard to small business or superannuation please feel free to contact Peter Quinn by submitting an online enquiry or calling us on +61 2 9580 9166 to book an obligation free appointment.
The information in this document does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. It is important that your personal circumstances are taken into account before making any financial decision and it is recommended that you seek assistance from your financial adviser.