Verify compassionate release with ATO

SMSF trustees are being urged to carefully verify compassionate release applications after the ATO and Australian Health Practitioners Regulation Agency revealed they have imposed more than $1.5 million in penalties as part of a crackdown on early super access arrangements linked to cosmetic and dental procedures.

Liam Shorte, director of SONAS Wealth, said unlike large retail or industry funds, SMSF trustees do not have a buffer between members and the money in the fund.

“The member who wants the procedure is often also a trustee, or a director of the corporate trustee. The person under pressure to pay for the treatment is the same person who can authorise the payment,” he said.

The ATO and AHPRA issued a joint statement on 22 October targeting health practitioners and third-party facilitators who push people to access their super early, particularly for cosmetic dental work.

Shorte said due to the nature of SMSFs, where trustees are also members, it is important the rules in regard to early release of super on compassionate grounds are fully understood.

“An SMSF trustee can release a benefit on compassionate grounds only after the ATO has approved the member’s application. The ATO’s approval letter sets the amount and the purpose, and the trustee can pay up to that amount, for that purpose, and no more,” he said.

“The trust deed also needs to allow the payment, so check it first. ATO approval permits the release but does not oblige the trustee to make it. Paying a benefit without approval, or beyond what was approved, is illegal early access, and the consequences fall on more than one person.”

He continued that the amount released is generally included in the member’s assessable income and taxed at their marginal rate.

Additionally, trustees can face administrative penalties, and individual trustees or directors can be penalised separately.

“The auditor may have to report the breach to the ATO as a contravention. The ATO can then take further action, which can include rectification or education directions, disqualification of a trustee (devastating if you run your own business), or in serious cases making the fund non-complying,” he said.

He said it should also be noted that the trust deed must also allow the payment and it is best practice to check the payment of benefits clauses.

“Even a properly approved release costs something. As the ATO notes, approved amounts withdrawn may be taxable and increase reportable income, which could affect eligibility for government payments such as the Family Tax Benefit,” he said.

“How much tax applies depends on the member’s age and the components of their benefit. For a young family stretching to pay for treatment, a smaller family payment on top of a smaller super balance can come as an unwelcome double whammy.”

By: Keeli Cambourne | October 29, 2026 | smsfadviser.com