Legislation was recently introduced to prevent perpetrators of child sexual offences from using the superannuation system as a shield for their wealth against victim compensation claims. Michael Hallinan details how these measures will apply to SMSF trustees.

The recently introduced Division 139 of the Taxation Administration Act 1953 has implications for superannuation interests in SMSFs. Its inception came via the Treasury Laws Amendment (The Survivor’s Law) Act 2026.

The purpose of Division 139

The purpose of Division 139 is to allow individuals who are the victims of specified child sexual offences and who have been granted civil compensation orders to access the offender’s super to satisfy the payment of the compensation order.

The measure is intended to prevent the superannuation system from being used as a shield to protect the offender’s wealth from compensation orders by transferring monies into it.

As the taxation collection system is being used to satisfy a private debt, the legislation has had to navigate delicate constitutional and other legal issues.

From the perspective of the SMSF, the application of Division 139 is, at a high level, relatively straightforward. The ATO issues the trustee with a release order in respect of a member of the SMSF. Assuming the release order is formally valid, the trustee must pay to the ATO the amount specified in the release order and then must debit the offender’s interest in the fund to the extent of that amount.

However, from the perspective of the victim of the specified child sexual abuse, the process is rather more complicated.

The Division 139 process

The Division 139 collection process consists of a number of steps as follows.

Step 1

The offender has been found guilty or been convicted of specified kinds of child sexual offences involving the victim.

Step 2

A court issues a compensation order in favour of the victim.

Step 3

The offender has not paid or fully paid the compensation amount within 12 months of the issue of the compensation order.

Step 4

The victim, or their agent (lawyer or tax agent), applies to the ATO for information about the superannuation interests of the offender. This application must be in an approved form, be accompanied by a statutory declaration by the applicant as to the grounds for it and a copy of the compensation order and the date the conduct constituting the offence first occurred must be provided. Due to the transitional provisions, applications can only be made on or after 21 May 2027, being 12 months after the registration date of the act.

Step 5

The ATO provides information to the applicant, being the total of the offender’s additional contributions made during the eligible period. The regulator does not disclose the identity of the superannuation fund(s) that hold those additional contributions. It must also provide a copy of the information disclosed to the applicant, but not name the applicant or the victim, to the offender.

In broad terms, the additional contributions amount is the total of contributions made during the eligible period by or for the offender, being member contributions and voluntary employer contributions made since 1 July 2002. Government co-contributions and contribution splitting benefits are excluded.

The eligible period is the timeframe commencing 10 years before the first day on which the conduct constituting the specified offence occurred and ending on the day on which the information request is given to the ATO.

Step 6

The victim applies to the Federal Circuit and Family Court (Division 2) for an authorisation enabling the ATO to issue a Division 139 release order. A copy of the application must be served on the ATO and the offender. The offender can intervene in the proceedings.

While the offender can oppose the making of the authorisation order, they are limited to grounds related to the preconditions for the grant by the court of the authorisation order, for example, that the compensation order has in fact been satisfied or that the offender was never found guilty or convicted. The ATO may also intervene in the proceedings.

The court is not permitted to make an authorisation order if there are proceedings that have commenced for orders under the Bankruptcy Act that have not been finalised in relation to the offender. Also, the court is not permitted to make an authorisation order where family law proceedings have commenced involving the offender but not finalised. In these situations the authorisation order can only be made once the proceedings have been finalised.

The offender is required to notify the court of any such bankruptcy or family law proceedings.

Step 7

The victim then must serve a copy of the authorisation order on the ATO. The regulator is then authorised to issue one or more release orders to superannuation entities that hold the benefits of the offender. The amount the ATO can seek to have released cannot exceed the court-specified total. The regulator may issue one or more release orders to various superannuation entities. However, the benefit total sought to be released in those orders cannot exceed the court-specified amount.

Step 8

On receipt of a release order, the SMSF must pay the specified amount to the ATO within 10 business days and advise it of the payment. The amount paid to the ATO is not subject to the proportioning rule and is non-assessable and non-exempt income of the offender. The SMSF must also advise the offender of the payment.

If the SMSF cannot pay any amount, for example, if it no longer holds an interest for the offender or can only partly pay the released amount, the fund must advise the ATO of the non-payment or shortfall and provide the reasons for it.

Step 9

The ATO receives a released amount from the SMSF and pays the amount to the victim.

Comments on the process

As the taxation collection system is being used to satisfy a private debt rather than a debt due to the Crown, the process requires an application being made to the Federal Circuit and Family Court to authorise the ATO to issue the release authority. This permits the offender the opportunity to contest the grant of the authorisation order and the issue of the release authority. Presumably, this step has been inserted for two reasons; namely to remove the possibility of the offender subsequently challenging the ATO collection process as being an exercise of judicial power and to remove the possibility of the offender challenging the regulator’s decision as a denial of natural justice.

Given the stated aim of the legislation is to prevent the superannuation system from being used to shield the wealth of the offender from the victim, the eligible period very significantly pre-dates the occurrence of the conduct constituting the sexual abuse. Unlike the Bankruptcy Act, there is no attempt to restrict the scope of the release order to contributions that have been made solely or predominantly to transfer wealth into the superannuation system to defeat a compensation order by reference to ‘unusual’ contributions or contributions not consistent with the normal pattern of the previous contributions of the offender.

What must SMSF trustees do?

Upon service of the release order, the trustee must, within 10 business days, take the following actions:

• determine formal validity of the order (that is, to ensure it correctly identifies the SMSF and determine whether the offender is a member of the fund),
• determine whether the SMSF still has the offender’s benefits,
• determine whether the release order is inconsistent with any pre-existing orders applying to the superannuation interests of the offender,
• determine whether the trustee is precluded from complying with the release order due to a payment flag or a payment split interest or splitting action being undertaken in respect of the super interest under the Superannuation Industry (Supervision) (SIS) splitting provisions,
• determine the maximum available release amounts for each interest held by the SMSF for the offender,
• pay the lesser of (a) the amount specified in the release order and (b) the maximum available release amount, and
• notify the ATO what action has been taken or the fact that no action has been taken and the reason for inaction, and the amount paid and if the amount paid is less than the specified amount, the amount of the shortfall and the reason behind it.

Can the offender challenge the issue of the release order?

The offender cannot challenge the ATO as to the decision to issue the release order. The offender, if they wish to challenge the process, must intervene in the court proceedings relating to the issue of the authorisation order.

What is the impact of the offender’s other interests?

The SMSF may be prevented from complying with a release order where doing so would be inconsistent with any of the following applying to the superannuation interest:

• a forfeiture order relating to the proceeds of crime legislation,
• a restraining order under the Bankruptcy Act,
• a superannuation order under Part 2 of the Crimes (Superannuation Benefits) Act 1989,
• a payment flag, or
• a superannuation-splitting process under the SIS splitting provisions.

Can the SMSF trust deed override or preclude the application of release orders?

Probably not. If the release order has been validly issued, the trustee would be required to act in accordance with the order even if the trust deed contained an express prohibition on complying with such orders.

Can the SMSF trustee simply decline to obey a release order?

Well, of course, the trustee could. The issue will be the resulting consequences. The penalty will be $6600 and, ultimately, the individual(s) could be a disqualified from acting as an SMSF trustee.

Impact of the offender dying

If the offender dies before a release order is served on the SMSF, it seems the superannuation interest would then cease to be one belonging to the offender. Consequently, on service of the release order, the SMSF would have to advise the ATO it has ceased to hold a superannuation interest for the offender.

If the offender dies after service of the release order, but before the SMSF has actioned it, then arguably the fund is still required to pay the specified amount to the ATO and the balance of the superannuation interest would constitute a death benefit of the offender.

Impact of super splitting

One ground for the SMSF not acting upon a release order is the benefits of the offender are subject to a superannuation-splitting process.

If the superannuation interest of the offender is subject to a payment flag, this will preclude the SMSF from actioning the release order while it applies to that interest. It does not invalidate the release order and it remains valid unless and until it is revoked by the ATO or it is discharged by performance. Consequently, if and when the payment flag is removed, the release order will then apply.

If the superannuation interest of the offender is subject to a payment split, and the splitting process under Part 7A.2 of the SIS Regulations has not been completed at the time the release order is issued, the release order will take effect once that process has been completed and will then apply to the offender’s residual super interest, if any.

If the release order is served on the SMSF in the gap between service of the splitting instrument and the operative time in respect of that instrument, the release order takes effect in priority to the splitting instrument.