The ATO will have ‘no problem’ tracking down Australians who withdrew their super against the rules, according to a tax agent — and even honest mistakes will be punished

Australians who accessed their super early but were ineligible to do so may have good reason to worry about the ATO.(Speed Media, Icon Sportswire via Getty Images)
  • The ATO will find it “quite easy” to track down ineligible Australians who withdrew their super, according to H&R Block.
  • Director of communications Mark Chapman told Business Insider Australia that the tax office will be able to quickly identify and investigate applicants whose claims don’t add up.
  • Even honest mistakes will face a big tax bill if reviewed, he warned, with people who deliberately misused the scheme to potentially face thousands of dollars worth of penalties.
  • Visit Business Insider Australia’s homepage for more stories.

If you chose to cash out your super this year, you can expect the tax office is about to put your application under the microscope.

While millions of Australians have withdrawn up to $20,000 under the government’s early access scheme, plenty of them weren’t even eligible for it.

Now the ATO is reviewing applicants, it’s only a matter of time before it begins finding those who deceived it, H&R Block director of communications Mark Chapman told Business Insider Australia.

“It will be quite easy for the ATO to identify those people who took out super when they weren’t eligible to do so,” Chapman said.

“The tax office has so much information on what people are doing these days that it can immediately see whether someone’s hours has dropped by 20% or not, or if they say they’ve been made redundant by their employer but are still on the payroll.”

That may come as news to some, with several successful applicants telling Business Insider Australia they were confident they wouldn’t be caught, while others are already applying for mortgages with their money. The ATO confirmed it has already begun contacting those who made suspect claims.

“It would be foolish for them to rely on the ATO simply not noticing,” Chapman said. “They don’t even need to ask the taxpayer or enquire with the business because all this information is transmitted instantly every time that payroll runs. I’ve got no doubt the ATO will find it quite easy to track these people down and will do just that.”

Big tax bills and thousands of dollars in fines could await some Australians

If the tax office catches up with them, they may face a large tax bill on top of fines stretching north of $12,000 — punitive measures which will likely leave them in a worse financial spot than they began.

Of course, not all ineligible applications were deliberate attempts to exploit the system. Many were simply honest mistakes made by people who didn’t fully grasp the scheme or understand how it was meant to work through no fault of their own.

“A lot of people who have been in touch with us thought their hours were going to be cut or they were about to lose their job and withdrew in anticipation, but in the end neither happened,” Chapman said. “Now they’ve got a problem.”

“For the people who read the requirements, it was pretty clear, but there is a group who didn’t understand what they were doing or perhaps were given some bad advice,” Chapman said.

“Irrespective of what their motivation was, however, the best-case scenario for people who made a little mistake is the ATO obliges them to put the money on their tax return as assessable income,” he added.

The money would then be taxed at their personal income tax rate. For the average worker, that would see them hand back around one in every three dollars they took out.

“Where an individual has made an honest mistake, we will work with the individual to resolve the issue with understanding,” an ATO spokesperson told Business Insider Australia.

The tax office will go particularly hard on deliberate exploitation of the scheme

Things become a lot more serious however if the ATO can identify an intent to exploit the scheme.

“Those people who deliberately did the wrong thing are looking at penalties that run into the thousands of dollars on top of paying tax on the amount,” Chapman said.

In an example provided by the ATO, a $5,000 illegitimate withdrawal produces a $12,600 fine. Coupled with a tax bill of $1,600, someone can easily be left more than $9,000 out of pocket, on top of having wiped $5,000 from their super balance.

Yet another trap lies in wait for those who, realising their mistake, simply try to put the money back into their fund. Doing so earns a sizeable tax benefit and is certain to appear like deliberate tax avoidance to the ATO and incur its wrath accordingly.

“Doing so clearly shows an intent to crystallise a tax deduction that you would not have otherwise been able to get and people will really struggle to plead innocence in that case,” he said.

The best bet for Australians who have made a mistake, honest or otherwise, is to get out in front of it, either by contacting a tax professional or the ATO directly.

“Applicants who are ineligible and do not take action to contact us may need to include the amount withdrawn as assessable income in their tax return and we may apply penalties,” the ATO spokesperson confirmed.

That could leave some financially worse off than the coronavirus ever did.

Disclaimer: This article contains general information only and is not intended to be used as personal advice.