In Australia, there’s one class of assets that typically gets protection from creditors – and that is superannuation. This safeguard is part of a government initiative designed to ensure that even those who face financial hardship and end up a bankrupt can still afford to provide for their retirement. It’s a safety net that allows individuals to have a fresh start and rebuild their lives after they are discharged from bankruptcy.
But what does this mean? This article dives in to explore the curious intersection of superannuation and bankruptcy in Australia.
Protection of Superannuation in Bankruptcy
If the bankrupt invests their superannuation into a complying and regulated fund and keeps it in that environment, the funds will typically be protected. However, there are exemptions from this general rule, such as when an individual makes a large, one-off payment into the super fund, such as when proceeds from the sale of property go into the super fund with the intent to defeat creditors. In such cases, a trustee in bankruptcy may have the right to claw back that payment.
Importance of the Superannuation Regime in Bankruptcy
It is crucial that bankrupts understand the role superannuation plays in the bankruptcy regime.
Most importantly, if superannuation is released before bankruptcy, despite it being for a hardship claim, any such funds, or assets purchased with the proceeds of such funds are not protected from the bankruptcy trustee. Any assets purchased even from superfunds whilst a bankrupt may be claimed by your bankruptcy trustee.
Thus, it’s important for individuals to carefully consider the reason they may need to access their superannuation and the potential consequences.
Early access to Superannuation
There are specific instances in which a bankrupt can access their superannuation early. These include:
- Access on Compassionate Grounds
You may be allowed to withdraw your superannuation early in situations where there is a compassionate need, such as paying for urgent medical treatment or transport for you or a dependent. The compassionate grounds for early access are generally quite strict, and the circumstances must be deemed urgent and essential. - Access due to a Terminal Medical Condition
If you are diagnosed with a terminal medical condition, you may be allowed to access your superannuation early. This allows individuals to access their funds during a difficult and financially challenging time. - Access due to Severe Financial Hardship
If you are experiencing severe financial hardship, you may be able to withdraw some of your super. However, access on grounds of severe financial hardship is managed directly by the super fund, not by the Australian Taxation Office (ATO). You need to contact your super provider to request access due to severe financial hardship.
The minimum withdrawal amount is $1,000 and the maximum is $10,000. If your super balance is less than $1,000, you can withdraw up to your remaining balance after tax. - Access due to Temporary Incapacity
If you become temporarily unable to work or need to work fewer hours due to a physical or mental medical condition, you may be able to access your superannuation. The funds are generally received in regular payments as an income stream over the period you are unable to work. - Access due to Permanent Incapacity
In cases of permanent incapacity, where an individual is unable to ever return to work, early access to superannuation may also be permitted. This type of withdrawal is often referred to as a “disability super benefit.” It can be received either as a lump sum or through regular payments (income stream). - Super balance less than $200
If your superannuation balance is less than $200, you may be able to access the entire amount regardless of the reason.
Conclusion
The superannuation regime in Australia has a provision to allow individuals to claim a portion of their accumulated superannuation in specific hardship situations. However, for those considering going bankrupt or who might be made bankrupt by a creditor, it is essential to understand the potential consequences of withdrawing super early. Funds released early may not be protected from creditors, and any assets purchased with those funds could be claimed by your bankruptcy trustee.
If you would like to discuss your situation please feel free to contact our trustee in bankruptcy Anthony Bagala at dVT Group on (02) 9633 3333 or by email abagala@dvtgroup.com.au.
dVT Group is a business advisory firm that specialises in business turnaround, insolvency (both corporate and personal), business valuations and business strategy support.
By Anthony Bagala
November 2024
