A guide to the issues every SMSF owner must understand first before using Compassionate Early Release.

SONAS WEALTH  |  THE SMSF COACH

SMSF TRUSTEE EDUCATION SERIES

By Liam Shorte  |  Fellow SMSF Specialist Advisor™  |  Financial Planner

⚖️  General Advice Disclaimer This article is general information only and does not constitute personal financial, legal or tax advice. The rules governing SMSFs are complex and individual circumstances vary significantly. You should obtain advice from a licensed financial adviser before acting on anything in this article. The author holds AFSL authorisation through Sonas Wealth Pty Ltd, corporate authorised representative of Viridian Advisory 476223.

The ATO’s latest compassionate release figures tell an odd story. The number of approved applications fell by 5% in 2025–26, yet the total value approved rose by 2% to over $1.4 billion. Fewer people are getting through, but on average each approval is larger.

The ATO believes its compliance work explains the drop. The rising dollar figure points to something else: where these arrangements still succeed, bigger sums are leaving retirement savings. For SMSF trustees, that deserves more attention than most of the coverage will give it. There are minefields for SMSF Trustees that could destroy future plans and derail your business or career.

What the ATO and Ahpra announced

On 22 October 2026 the ATO and the Australian Health Practitioner Regulation Agency (Ahpra) issued a joint release targeting health practitioners and third-party facilitators who push people to access their super early. They single out cosmetic dental work.

The ATO says that since 1 July 2025 it has started over 160 reviews and audits where it considers false or misleading statements were made in applications or medical reports, and has imposed penalties of over $1.5 million. In one case study, a practitioner received an administrative penalty of around $30,000 for false or misleading statements in a medical report. Ahpra reports that one practitioner has had their registration suspended in relation to a patient’s cosmetic surgery, and others face tribunal proceedings.

ATO Deputy Commissioner Ben Kelly put it plainly: “compassionate release of super should only be considered as a last resort, where all other options of paying for the eligible expenses have been exhausted.”

Why SMSF trustees carry more of the weight

In a large retail or industry fund, the fund stands between the member and the money. It checks the paperwork and makes the payment. An SMSF usually has no such buffer. 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. We warn our client’s to be very, very careful if considering this option and can often find alternatives sources of finance for the treatment.

So the rules are worth stating clearly. 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. 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. The amount released is generally included in the member’s assessable income and taxed at their marginal rate. Trustees can face administrative penalties, and each individual trustee or director 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. See the Worst Case Scenario section below for more details.

READ THE DEED: Note that the trust deed must also allow the payment. Check the payment of benefits clauses.

Penalties are set in penalty units, which are indexed. A 60-penalty-unit administrative breach for a self-managed super fund (SMSF) trustee equals $21,840 (calculated at the current rate of $364 per penalty unit effective 1 July 2026). If you want current dollar figures, check the ATO’s SMSF guidance as this number will only increase over time!

The tax and Centrelink catch

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. 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!

Red flags worth knowing

The ATO and Ahpra describe a pattern that’s easy to spot once you’ve seen it. Be wary of:

• Social media or online advertising for treatment “funded by your super”
• Short online consultations that quickly confirm you qualify
• Templated paperwork, or an offer to complete the application for you
• Pressure to commit before you’ve had time to think it through
• Cosmetic dental work presented as a medical necessity

Ahpra CEO Justin Untersteiner said Ahpra is “concerned by predatory sales tactics that use social media and internet advertising to attract patients for high-cost treatments they do not need or cannot afford.”

A better first step is a phone call. Speak to your adviser, accountant or SMSF administrator before you sign anything or pay a deposit. A short conversation can save a member years of lost compounding and spare the trustees a compliance problem.

A note for accountants, auditors and administrators

Most of us see the results of these arrangements in the annual paperwork, not when they happen. A few checks are worth building into the file review. Any benefit paid without an obvious condition of release should have an ATO approval letter on file, and the amount paid should not exceed the approved amount. How the money was paid also matters. Note whether it went to the member or straight to the provider, and confirm that invoices and receipts match the approved purpose. If the same provider or facilitator turns up across several clients’ files, look more closely.

Raising this early helps everyone. A trustee who hears about a problem from their accountant has options. A trustee who first hears about it from an auditor contravention report or an ATO letter has fewer. Raising it early also protects the professional: a question asked and an answer on file are far better than explaining later why a gap went unnoticed.

How to report concerns

If you see inappropriate advertising, or suspect a practitioner has provided an inaccurate medical report, the ATO encourages you to make a tip-off. Trustees who realise their fund has made a payment it shouldn’t have can make a voluntary disclosure, which puts them in a better position than waiting for the ATO to find it. Concerns about a registered health practitioner can be reported to Ahpra.

Back to what super is for

The Sole Purpose of super is to set you up for retirement. Compassionate release exists for real hardship, and for people who need it, it does its job. As SMSF trustees and advisers, our fiduciary duty is to make sure it doesn’t become a payment plan for someone else’s sales target.

If you’re an SMSF trustee weighing up a compassionate release application, or a professional who has spotted something in a client file, I’m happy to talk it through. You can contact us here or post an Anonymous Question on our SMSF Coaching & Strategies Sharing Facebook Forum. I’d also like to hear in the comments whether these offers are turning up in your practice and your views.

Worst Case Scenario

Here are the detailed main downsides for SMSF trustees, or directors of a corporate trustee, who falsify a compassionate release application or pay a benefit that relies on one. They fall into seven groups.

1. Tax for the member

• Money released on the back of a false application is likely to be treated as illegal early access. It is then included in the member’s assessable income and taxed at their marginal rate, not at the concessional super lump sum rates.
• General interest charge and shortfall interest charge can apply to any unpaid tax.
• The extra income can reduce Family Tax Benefit and other Centrelink payments, and may create a debt that has to be repaid.

2. Penalties for false or misleading statements

• The ATO can impose administrative penalties for false or misleading statements. The amount depends on how culpable the person was, for example carelessness compared with intentional disregard.
• These penalties can apply to the member, the individual trustees or SMSF Trustee Company directors, and anyone else who made or supported the false statements.

3. Possible criminal prosecution

• Serious cases can be referred for prosecution. Relevant offences include giving false or misleading information to a Commonwealth entity and, at the serious end, obtaining a financial advantage by deception under the Criminal Code.
• A conviction for a dishonesty offence has knock-on effects. It automatically disqualifies the person as an SMSF trustee. It can also disqualify them from managing any Company under the Corporations Act, which matters for anyone running a business through a company or they have career board director promotion prospects.

4. Penalties under the super rules (SIS Act)

• Paying a benefit without a valid condition of release breaches the payment standards. An administrative penalty applies, which I understand to be 60 penalty units for this breach. Penalty units are indexed, so check the current value with the ATO. Current Early Release is a $21,840 penalty per Trustee.
• Individual trustees are each penalised separately. For a corporate trustee, the directors are jointly and severally liable.
• These penalties must be paid personally. They can’t be paid or reimbursed from fund assets.
• The ATO can also issue a rectification direction, which means unwinding the payment at the trustee’s cost. It can issue an education direction, or require an enforceable undertaking.

5. Disqualification and loss of control of the fund

• The ATO can disqualify a trustee or director, and disqualified people are named on a public register.
• A disqualified person can’t act as trustee or director of any SMSF. The fund then has to restructure, roll its members out to an APRA-regulated fund, or wind up.
• Acting as a trustee while disqualified is a separate offence.

6. The fund can be made non-complying

• In serious cases the ATO can make the fund non-complying. The fund is then taxed at 45% on its income and, in the year it becomes non-complying, on the market value of its assets, less certain contributions.
• That hits every member of the fund, including a spouse or family members who had nothing to do with the false application.

7. Other consequences

• The auditor will likely have to report the breach to the ATO in a contravention report. That often leads to closer ATO scrutiny of earlier years and of other transactions.
• Co-trustees can’t rely on having been passive. Every trustee or director is responsible for the fund’s compliance, even if they didn’t sign the application.
• Blaming the promoter doesn’t remove the trustee’s liability, even where a clinic, facilitator or “super access” service prepared the paperwork.
• The money is permanently gone from retirement savings, along with the growth it would have earned. Putting it back is limited by the contribution caps.
• Exposure to penalties, tax debts and possible bankruptcy can damage the trustees’ credit, finances and reputation, and affect their employment or professional registration.

What helps: if a false application or improper payment has already happened, a voluntary disclosure to the ATO before it starts a review usually leads to significantly lower penalties. It also gives the trustees more say in how the breach is fixed.

The exact penalty amounts and offence provisions are worth checking against current ATO and legislation sources before using them with clients, and serious cases should go to a lawyer. I’m not a lawyer, and this is general information only.

Further reading

• ATO: Tax on super benefits
• ATO and Ahpra: Red flags on super dental offers
• ATO: Eligibility for compassionate release of super
• Ahpra: Compassionate release of super guidance for practitioners
• Dental Board of Australia: Consumer resources
• Ahpra: Managing financial or commercial conflicts of interest

This article contains general information only and does not take into account your personal objectives, financial situation or needs. Before acting, consider whether it is appropriate for you and seek personal advice. Sonas Wealth Pty Ltd is a Corporate Authorised Representative of Viridian Advisory Pty Ltd, AFSL 476223.

#SMSF #Superannuation #SMSFTrustee #EarlyReleaseOfSuper #FinancialPlanning #MedicalTreatmentplies with relevant superannuation and tax regulations before implementation

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Liam Shorte B.Bus FSSA™ AFP

Financial Planner & Fellow SMSF Specialist Advisor™

      

Tel: 02 9899 3693, Mobile: 0413 936 299

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Important information

This article is general information only and does not constitute personal financial, legal, or taxation advice. The rules governing self-managed superannuation funds are complex and fact-specific. Individual circumstances vary significantly, and the application of the rules described in this guide depends on facts that can only be properly assessed by a qualified professional. Before establishing or participating in a structure of this type, seek advice from a licensed SMSF adviser and an experienced tax lawyer. Past tax outcomes are not a guide to future tax treatment.