Early release of super due to a terminal medical condition

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Australian super law allows for the full early release of your super if you’re diagnosed with a terminal medical condition, provided your super fund allows it. If your fund doesn’t allow for this type of release, you may be able to transfer your super to one that does.

Normally you can only access your super once you’ve reached your preservation age and met a condition of release (such as retiring from the workforce or turning 65). Your preservation age is between 55 and 60, depending on your date of birth.

However, these super release conditions can be waived if you’re diagnosed with a terminal medical condition.

What is the definition of a terminal medical condition?

Under Australian super law, you have a terminal medical condition when two medical practitioners have certified that you have an illness or injury that will result in your death within 24 months of the date of the certificate. At least one of these medical practitioners must be a specialist in the area of your terminal illness or injury.

You can choose to access all or some of your super due to being diagnosed with a terminal illness, subject to the rules of your fund. There are no legal restrictions on the amount you can access, but withdrawals must be taken as lump sums.

Other reasons for early release of super

You can find all the ways that you can access your super here, or continue reading for other conditions of release that can intersect with terminal medical conditions.

Compassionate grounds

Accessing your super early due to being diagnosed with a terminal medical condition is  different from accessing it on ‘compassionate grounds’ (which is another potential way that super can be accessed early under Australian law). It’s important to understand the difference between these two categories because there are different payment terms and conditions.

The major difference is that the amount you can access early on compassionate grounds is limited to an amount to cover the following unpaid expenses:

• Your medical treatment or transport for your terminal illness.
• A mortgage or council rates payment to prevent you from losing your home.
• Home or vehicle costs to accommodate a disability (for example, one associated with your terminal illness).
• Paying for your palliative care.
• paying for the death, funeral or burial expenses of a dependant.

In contrast, there are no restrictions on the amount of you super you can access early if you’re diagnosed with a terminal medical condition, and there are also no restrictions on how you can spend those early release funds.

Permanent or temporary incapacity

If you’re diagnosed as being temporarily or permanently incapacitated you can be eligible for insurance benefits through your super fund if you have this coverage, rather than withdrawing any or all of your super balance early.

How do you apply for early super release due to the diagnosis of a terminal medical condition?

You can apply to your super fund for an early release payment if you’re diagnosed with a terminal medical condition. You’ll need to provide two medical certificates confirming the diagnosis, as described earlier in this article.

Do the rules differ if you have an SMSF?

No. SMSF trustees are legally obliged to ensure that two medical certificates are provided by a member when applying to access their super early due to a terminal medical condition.

It’s important to understand that the Australian Taxation Office (ATO) can impose severe penalties on SMSF trustees for the illegal and/or unauthorised early release of super funds. These penalties can include very heavy fines (up to $420,000 for individual trustees and up to $1.1 million for corporate trustees), and/or up to five years imprisonment.

What are the tax implications?

If you’re diagnosed with a terminal illness, your super funds can be accessed tax-free anytime during your 24-month certification period. Any early super payment amounts you receive don’t need to be included on your tax return.

You may also be eligible for a refund on any tax that may have been withheld by your super fund from the time you were diagnosed until you receive your payment.

If you don’t withdraw all of your super and you survive beyond your 24-month certification period, you can still access your funds. However, they may not be tax-free unless you get an updated certificate.

The bottom line

Being diagnosed with a terminal medical condition is heart-breaking news. However, your early access eligibility for your super can help you and your dependants to cope financially. It’s worthwhile to seek independent professional advice on how to best use your super funds to provide for yourself and your dependants.

The information contained in this article is general in nature.