Key Highlights

•  The ATO says it remains concerned that some practitioners and operators encourage compassionate release applications for financial gain.

•  Applications are approved by the ATO, and an SMSF should release money only if the ATO has approved it and only up to the approved amount.

•  Illegal early release can lead to administrative penalties for trustees and possible disqualification.

Superannuation is designed to fund retirement, and access before then is tightly controlled. One of the few exceptions allows people to apply for release on compassionate grounds, such as paying for certain medical treatment. The ATO says it remains concerned that some health practitioners and third-party operators are encouraging people to use that pathway for financial gain, sometimes for procedures patients do not need.

While the number of approved compassionate release applications had fallen by 5 per cent, the ATO's concerns about inappropriate applications persist.

What the ATO and AHPRA said

ATO Deputy Commissioner Ben Kelly reminded Australians that super is meant for retirement and that early access is allowed only in strict, limited circumstances, such as paying for critical medical procedures. He said the fall in applications suggests compliance action is working and the message is being heard, and that the ATO will hold individuals and businesses involved in these arrangements accountable.

The ATO has stepped up compliance activity since 1 July 2025, with more than 160 reviews and audits where false or misleading statements were suspected in applications or medical reports, and penalties totalling more than $1.5 million imposed.

The Australian Health Practitioner Regulation Agency is working with the ATO. AHPRA chief executive Justin Untersteiner said the regulator is concerned about predatory sales tactics that use social media and online advertising to attract patients to high-cost treatments they do not need or cannot afford. He warned that "putting profits before patients" is unsafe and could cost practitioners their right to practise. It was noted that one practitioner's registration has been suspended over a patient's cosmetic surgery, and others face tribunal proceedings.

How compassionate release works

Applications for release on compassionate grounds are made to the ATO, and the ATO's guidance, updated in July 2026, says SMSF members also apply through the ATO. If an application is approved, the member's fund then releases the money. The ATO lists the grounds as medical treatment or medical transport for the member or a dependant, modifying a home or vehicle for a severe disability, palliative care for a terminal illness, death, funeral or burial expenses for a dependant, and preventing foreclosure or forced sale of the member's home. It states that compassionate grounds do not include general day-to-day expenses.

The amount is tied to the expense rather than a fixed cap. The ATO's conditions of release guidance for SMSFs says a compassionate grounds payment is a lump sum limited to what is reasonably needed. The ATO also notes that compassionate release is taxed as a normal super lump sum.

For SMSF trustees, the key point is that the fund should not release money on compassionate grounds unless the ATO has approved the release, and should release no more than the approved amount. Trustees should keep the ATO's approval documentation with the fund's records, because the auditor will check that no benefits were released illegally.

Why this matters more in an SMSF

In an SMSF, the member and the trustee are usually the same people. That makes the fund more exposed when a member is under pressure, whether from a clinic, a promoter or a personal financial crisis. Paying a benefit before a condition of release has been met is illegal early access. The ATO's guidance for SMSF trustees warns that illegal early release can lead to administrative penalties for trustees and possible disqualification.

Trustees should be wary of anyone who offers to help a member get money out of super early, especially where the offer involves setting up a new SMSF, rolling money into it and then accessing it. The ATO's compassionate release guidance specifically warns that advisers claiming early access can be obtained by transferring super into an SMSF are running illegal schemes that carry heavy penalties.

Practical considerations for trustees

  • Check whether a request for money fits a genuine condition of release, such as retirement, reaching age 65, or a specific ATO approval.
  • Do not rely on a provider's assurance that a release is "approved"; ask to see the ATO's approval documentation.
  • Pay only the approved amount and record it properly in the member's account.
  • Keep the documentation with the fund's minutes so the auditor can verify it.
  • Seek advice if a member is under financial pressure, as there may be legitimate alternatives.

Hypothetical example

A hypothetical SMSF member is told by a clinic that her super can pay for an expensive procedure and that the clinic will "handle the paperwork". The trustees, who are the member and her husband, should make sure the application is lodged with the ATO, wait for the ATO's decision before paying anything, release only the approved amount and record the transaction. If no ATO approval is received, the money should stay in the fund.

Takeaway

The ATO and AHPRA are jointly targeting inappropriate early release on medical grounds, and the penalties already imposed show the risk is real. SMSF trustees should insist on ATO approval before releasing any compassionate grounds payment, keep the paperwork and treat unsolicited offers to unlock super with caution.