The ATO has seen a significant increase in applications to access super early under compassionate grounds, as well as cases where trustees and members misunderstand the conditions of release. These areas remain high risk for SMSFs in 2025, particularly where the fund releases money without proper approval or documentation.

In Part 2 of our SMSF Danger Areas series, we look at where trustees are going wrong and why the ATO is applying closer scrutiny to early release claims.

1.Compassionate Release Claims Under Closer ATO Review

Compassionate release is available only in specific situations, such as medical treatment or preventing the forced sale of a home. While these grounds can be valid, the ATO continues to see claims that do not meet the requirements or are missing key supporting documents.

A common misunderstanding is assuming that financial stress or unexpected bills automatically qualify for early access. Trustees also sometimes release money before receiving the official ATO determination, which is not allowed.

Common issues the ATO is seeing

• Releasing funds before approval

• Insufficient medical or mortgage documentation

• Applying for expenses outside the compassionate rules

• Withdrawing more than the approved amount

A compassionate release approval is not automatic, and trustees must not release funds until the ATO has formally issued the determination.

Visit ATO on more details on compassionate grounds release:

– Expenses eligible for release on compassionate grounds
– Evidence requirements for compannsionate grounds release

2. Early Release for Expenses Without a Valid Condition of Release

The ATO commonly encounters situations where SMSFs release funds because a member is experiencing financial pressure, business difficulties or urgent expenses. Although these situations can be stressful, they do not automatically allow early access.

Unless a member meets a valid condition of release, the money cannot be withdrawn. Trustees cannot make exceptions based on personal judgement or urgent circumstances.

Examples of valid conditions of release

• Retirement after reaching preservation age

• Permanent incapacity

• Terminal medical condition

• Transition to retirement income stream

• ATO approved compassionate release

Any withdrawal outside these rules is considered unauthorised and treated as illegal early access.

Visit ATO to learn more about the condition of release:

– Condition of release to access super preserved

3. What Happens When the Rules Are Breached

A single incorrect withdrawal can lead to compliance action by the ATO. This may include issuing rectification directions, administrative penalties or, in more serious cases, making the fund non compliant. Trustees and members can also face tax consequences depending on the nature of the breach.

For more information on the consequences of SMSF non compliance, the ATO provides a detailed outline of its actions at ATO smsf non compliance actions.

Early access mistakes remain a major SMSF danger area in 2025, especially where trustees release funds without proper approval or rely on incorrect assumptions about compassionate grounds. Trustees should take care to follow the ATO’s strict process and ensure the fund only releases money when a valid condition of release has been met. In Part 3 of our series, we will cover the issues linked to personal contribution deductions and the ATO’s focus on SMSF lodgement compliance. If you need support with SMSF accounting or tax compliance, please contact us.