Can SMSF Members Pay Medical Expenses With Super?

Unexpected medical costs can create financial pressure for SMSF members. As an adviser, you may be asked whether clients can access their superannuation early to pay for treatment. While the ATO does allow early release of super under compassionate grounds, it’s critical that advisers guide their clients through the process to ensure compliance and avoid rejected applications.

Early Access to Super: Compassionate Grounds

Under ATO rules, SMSF members may apply for early release of super to cover specific unpaid expenses, including:

• Medical treatment and medical transport
• Modifying a home or vehicle to accommodate a disability
• Palliative care
• Funeral expenses for a dependent
• Mortgage or council rate payments to prevent foreclosure

For medical expenses specifically, the member must first demonstrate that they cannot meet these costs using personal savings, a loan, or the sale of assets.

Medical Eligibility Criteria

The ATO will only approve early access to super for medical treatment if the client’s condition meets one of the following requirements:

• It is life-threatening (likely to result in severe degeneration or death within 12 months)
• It causes acute or chronic pain
• It results in acute or chronic mental illness

Additional rules apply if the treatment involves overseas services, IVF, dental procedures, or staged treatments over a longer period. Advisers should ensure clients have clear evidence for each requirement before applying.

Documentation Required

To prevent compliance issues and delays, clients must provide:

• Two medical reports (from either two registered medical specialists or one registered specialist and one registered practitioner)
• An unpaid invoice or quote for the medical treatment

Applications must be submitted within six months of the date on these documents. If expired, new reports will be required. The ATO may contact the listed providers to verify the information.

Important: Medical bills must be unpaid. Clients cannot be reimbursed for expenses already settled, even if they used personal loans or borrowed funds from family.

Tax and Compliance Considerations

If the ATO approves early release, the amount is treated as a lump sum withdrawal. Standard tax rates apply, and the SMSF must withhold the appropriate tax.

Advisers should also ensure the fund’s trust deed permits early release of benefits under compassionate grounds and confirm that the SMSF remains compliant with SIS rules during the process.

Key Steps for Advisers

• Verify the client’s eligibility and documentation before submission
• Check that the fund deed allows for early release on compassionate grounds (reviewing your SMSF trust deed is critical)
• Ensure the withdrawal is properly documented and reported to avoid audit issues
• Educate clients on the tax consequences of an approved withdrawal

Related Resources

• SMSF Reporting Requirements: 2025 Guide – Understand the documentation obligations for SMSFs.
• Managing SMSF Trustee Incapacity: EPOA Rules for Advisers – Ensure clients are protected in case of incapacity.
• LRBA Reporting and Compliance for Advisers – Learn how to manage compliance risks effectively.

Final Considerations

While accessing super for medical treatment is possible, it involves strict eligibility and compliance requirements. Advisers play a critical role in helping clients prepare the necessary evidence and avoid missteps that could delay approval or create compliance risks.

Rely on our white-label SMSF admin expertise to support accurate, compliant applications for early release of super on medical grounds. Contact us to simplify the process and safeguard your clients’ compliance.