Several conditions must be met before individuals can consider applying to access their superannuation savings early to pay for medical expenses.
According to ATO data, 56,400 applications for compassionate early release of superannuation were submitted in the 2022 financial year, with more than 75 per cent of them made on medical grounds, amounting to over $544 million of monies paid out.
Reliance Auditing Services managing director Naz Randeria reminded superannuants the ATO would need to see sufficient evidence before granting a request for superannuation funds on the basis of a medical claim.
“While the overall trend over the past four years is an increase in the number of applications to access superannuation on compassionate grounds, it’s important to highlight that applicants must meet specific criteria,” Randeria said.
“One of these criteria is that the medical treatment is either for you or a dependant for a life-threatening illness or injury, or to alleviate acute or chronic pain, or to alleviate acute or chronic mental illness.
“However, it’s important to note that documentation must be provided, including two medical reports from registered specialists proving the criteria is met. Home or vehicle modifications to accommodate special needs arising from you or your dependant’s severe disability can also qualify.”
She added despite the need for evidence of medical conditions or injury, individuals should consider the potential impact on insurance policies, such as life insurance.
“Are the conditions specified covered by your policy? Have they been previously disclosed to your insurance company, do they need to be, and will your current premium be impacted? Will such conditions impact your ability to be covered by insurance in the future?”
She also pointed out the longer-term impacts of withdrawing superannuation ahead of retirement should be a major consideration before making an application.
“People also need to consider that any monies paid out will be treated as income for that financial year, which will increase the total amount of income earned, potentially pushing some people into a higher tax bracket and/or resulting in tax owing,” she said.
“While the reasons for seeking to withdraw funds from super shouldn’t be understated, people need to be fully informed of all potential consequences, however unintended they may be, and continue to treat early access to super as a last resort.”