'A genuine misunderstanding': The ATO suspects as many as 316,000 early super withdrawals shouldn't have been approved – but it hasn’t issued any penalties

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  • Up to 7% of all early super withdrawals were ineligible, the Australian Taxation Office (ATO) has revealed to Business Insider Australia, but acknowledged it has so far handed out zero fines.
  • The scheme’s chief administrator made the admission as it continues to review the millions of Australians who withdrew up to two allotments of $10,000.
  • More than $34 billion has been withdrawn under the early release scheme, which with little scrutiny of applicants has been slammed by some critics as a “free for all”.
  • Visit Business Insider Australia’s homepage for more stories.

Ineligible Australians raided their super funds as many as 316,000 times under the federal government’s early release scheme.

Its chief administrator, the Australian Taxation Office (ATO), has approved more than 4.5 million applications to be paid out but believes as many as 7% of those shouldn’t have been, according to internal data provided exclusively to Business Insider Australia.

While the 7% ineligibility figure could be revised lower in time, it establishes the possibility that hundreds of thousands of Australians may have misused the scheme and throws doubt on more than $2.4 billion worth of withdrawals made to date.

However, given the scheme has ripped almost $35 billion of savings from superannuation funds in the space of six months, it’s unlikely the ATO, or anyone for that matter, will ever have a firm idea of how much was illegitimately taken. Without a proper gatekeeper, critics have slammed it as “a free-for-all”.

After all, as Business Insider Australia previously revealed, at no point did the federal government, the ATO or super funds assess applicants. Instead, millions of Australians eager to cash out $10,000 a pop were approved almost immediately, except for the most obvious red flags.

A spokesperson said the tax office ultimately knocked back more than 136,000 withdrawals simply because it was clear applicants had already made a withdrawal that financial year, a direct breach of the rules.

A further 2,000 applications were held up and investigated further as possible fraudulent attempts. Just 130 of these ultimately went unapproved.

However, some 800 fraudulent attempts were let through, ATO Commissioner Jeremy Hirschhorn told a Senate hearing in August.

Using identity fraud to avoid detection, some criminal syndicates managed to make off with hundreds of thousands of dollars. They are currently being pursued by the Australian Federal Police (AFP).

In total, eight different regulators and watchdogs have discovered related scams and breaches.

Thousands of Australians are being audited by the ATO

An ATO spokesperson confirmed it is “reviewing over 1,600 applications to confirm whether the individual applicants met the eligibility criteria” as part of its June pilot program and requesting those individuals front up evidence for their claim.

To be eligible, a resident had to have been unemployed, made redundant, had their hours reduced by 20% or more, been receiving certain government benefits, had their sole trader turnover fall, or been a visa-holder unable to meet their immediate living expenses.

“For those applicants where we have confirmed that they were not eligible, there has generally been a genuine misunderstanding of the eligibility criteria,” they said.

Certainly, plenty of applicants told Business Insider Australia they simply didn’t understand how the scheme worked, and on finding out they had never been assessed, fretted they were inadvertently in the wrong.

But the complete lack of scrutiny led many to deliberately misuse the scheme. For some, it presented an opportunity to get onto the long-elusive property ladder, for others it was a chance to pay down debts or to get their hands on some extra cash as Australia veered into a recession.

The tax office says 1,713 people have come forward of their own accord and confessed they weren’t eligible.

No fines or penalties have been issued

Those who have been caught, or who have volunteered themselves for review, have gotten off relatively lightly.

Some have had their withdrawals added to their assessable income and taxed accordingly. With average Australia taking out about $8,000, most would be up for paying an extra $2,400 – ultimately reducing their savings and their super.

While the ATO has threatened fines of more than $12,000, it says that no such penalties have been imposed to date.

“Only in serious cases where an applicant has deliberately applied knowing that they were not eligible will the ATO apply penalties,” a spokesperson said.

The ATO has shown a preference for deterrence

For all the tough-talking, it seems highly unlikely the law is going to catch up to every Australian.

Having cobbled it together in the space of a few weeks at best, it was always going to be a gargantuan task for the ATO to administer the scheme, let alone police it.

Instead, it has relied on a strategy of deterrence, sending push notifications to discourage up to 50,000 ‘high-risk’ Australians from misusing the system, as well as sending 5,000 individuals reminders to check their details before applying for a second withdrawal.

While the ATO won’t say how it identifies specific individuals, an FOI disclosure shows “high income” Australians with larger withdrawal requests were targetted.

“These individuals are being actively monitored throughout [the second tranche],” a spokesperson said.

Given that billions of dollars have already flowed to millions of Australians however, the horse appears to have bolted.

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