Accessing Super on Compassionate Grounds or Due to Financial Hardship

Self-managed superannuation funds (SMSFs) let you control how your super is invested but they don’t let you access those funds any earlier than you could in a large fund.  Even though it’s your super and (for SMSFs) sits in a bank account you control, accessing it early is illegal.

A member can only be paid their super if they have met a “condition of release”. These are set out in the superannuation law (Schedule 1 to the Superannuation Industry (Supervision) Regulations 1994).  The main ones are:

• retirement (member must be at least 60);
• temporary incapacity;
• terminal medical condition;
• reaching age 65;
• permanent incapacity;
• starting a “transition to retirement income stream” (member must be at least 60);
• death;
• compassionate grounds; and
• severe financial hardship.

This article explains the requirements to meet the last two – compassionate grounds and severe financial hardship. Importantly, members cannot dip into super whenever they’re in financial trouble. The rules are very narrow.

Compassionate grounds

Only the ATO, not the SMSF trustee, can approve a release of super on compassionate grounds. The money must be needed for one of the following:

• to pay for medical treatment or medical transport for the member or a dependant. Two medical practitioners must certify that the treatment is necessary to treat a life threatening condition, alleviate pain or mental disturbance, and the treatment is not readily available in the public health system.
• to make a loan repayment to prevent the member’s home being sold by the lender. The lender must provide a written statement stating that an amount is overdue and, if unpaid, the home will be sold;
• to modify the member’s home or vehicle to accommodate special needs arising from the severe disability of the member or a dependant; or
• to pay for expenses associated with the member’s palliative care; or
• to pay for expenses associated with a dependant’s palliative care, death, or funeral.

The ATO must be satisfied that the member cannot otherwise pay for those expenses.

Members seeking to access their super on compassionate grounds must apply to the ATO.  Based on data released by the ATO, many applications are unsuccessful

The number of applications the ATO has received for compassionate release of super doubled from 45,300 in 2020/21 to 90,690 in 2023/24.

Applications based on medical grounds were the most successful, but many were rejected:

• 72% of 71,900 applications based on medical grounds were approved;
• 39% of 2,300 applications to accommodate a disability were approved;
• 12% of 290 applications for palliative care were approved;
• 9% of 12,900 applications to prevent the forced sale of a home were approved; and
• 26% of 3,300 applications for funeral expenses were approved.

Severe financial hardship

In cases of severe financial hardship, it is the SMSF trustee (not the ATO) who determines whether super can be released. However, the law defines what severe financial hardship means and the trustee cannot pay out any benefits unless the member meets one of the following definitions:

• there is written evidence from a government department that the person has received income support payments (such as a disability support pension) for a continuous period of 26 weeks and is still receiving them. The member also needs to demonstrate that they cannot meet reasonable and immediate family living expenses. The maximum that can be released is $10,000; or
• the member is not working and has reached preservation age (generally, 60) plus 39 weeks. There also needs to be written evidence from a government department that the person has received income support payments (such as a disability support pension) for a continuous period of 39 weeks after they turned 60. There is no limit on how much can be withdrawn.

Withdrawing super when condition of release hasn’t been met is illegal.  The consequences of doing so include additional income tax, penalties and interest and disqualification of the trustee. The disqualification is on public record.

If you are unsure whether a condition of release has been met, please contact Leonie Carruthers or Antony Barrier.