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Case Study – Early release of superannuation on compassionate grounds
A complainant that had recently been diagnosed with stage four prostate cancer, was advised (by their doctor) to have surgery as soon as possible to remove the cancer. Understandably, the surgery was time critical. The complainant needed to borrow money from a family friend to make the upfront payment for the surgery as well as other medical expenses. The complainant intended to repay their family friend by applying for an early release of their superannuation on compassionate grounds. Applications for compassionate release of superannuation are set out in regulation 6.19A of the Superannuation Industry (Supervision) Regulations 1994 and are currently administered by the ATO but have previously been administered by the Department of Human Services (DHS) and the Australian Prudential Regulation Authority (APRA).
As per section 4 of the Superannuation Industry (Supervision) Act 1993 – the Commissioner of Taxation is generally responsible for self-managed superannuation funds, data and payment standards, tax file numbers and the compassionate release of superannuation amounts.
Importantly, there has not been any legislative changes to the eligibility for early release of superannuation on compassionate grounds across the different periods of administration – that is, by the ATO and DHS, and APRA.
Following the ATO’s consideration of the complainant’s application, the ATO informed the complainant that their application had been rejected on the basis that the surgery and medical expenses had already been paid. The ATO’s policy was to only approve compassionate release of superannuation for unpaid expenses. Therefore, if the expense had already been paid, for example by using a loan, a credit card or money borrowed from family or friends, then the applicant would not meet the eligibility requirements for compassionate release of superannuation. The complainant sought an internal review of the ATO’s decision which affirmed the ATO’s original decision.
The complainant subsequently lodged a dispute with the IGTO. The IGTO’s investigation initially focused on the legislative basis that the medical expenses for early release of superannuation on compassionate grounds had to be unpaid. The IGTO also referred the ATO to a 2014 version of the DHS’s website which suggested that applications for compassionate release of superannuation to repay a loan, where an applicant borrowed money to pay for their medical expenses, may have been approved. Accordingly, the IGTO recommended that the ATO reconsider the complainant’s original application based on the specific circumstances. The ATO responded that further reconsideration of the complainant’s original application would not lead to a different outcome.
The IGTO further examined the relevant legislative provisions and identified that it included a specific paragraph which provided the ATO with legislative residual discretion to approve release on grounds that are consistent with the compassionate grounds of release in the legislation. The IGTO formed the view that this legislative residual discretion could be applied to the complainant’s circumstance.
The IGTO also further investigated the circumstances described on the 2014 version of the DHS website. This led the IGTO to locate a publicly available version of APRA’s guidelines from 2001. The APRA guidelines stated that when an applicant had incurred debts by borrowing money to pay for expenses that were ordinarily grounds for compassionate release and have difficulties repaying the loan, then a release for the relevant expense can be approved under the legislative residual discretion. Furthermore, the guidelines set out what evidence was required from applicants at the time to approve their applications for early release of superannuation.
The IGTO escalated its investigation to Senior ATO Executives and provided to them the evidence of how previous administrators would consider and approve applications for early release of superannuation on compassionate grounds to repay a loan that was paid for expenses such as medical expenses that were ordinarily grounds for compassionate release. The IGTO also communicated its view to the ATO that if the ATO were to adopt this approach, then further information would be required from the complainant to determine if they were eligible on this basis.
The ATO established that the DHS approach in 2014 would not have resulted in a release of superannuation to the applicant, and that this outcome was also implicit in the guidance materials provided when administration passed to the ATO in 2018.
Following the ATO’s further review of the relevant legislation and the policy intent, however, the ATO informed the IGTO that it had determined that a release of superannuation can be granted in certain limited circumstances where:
- a loan was taken out by an applicant to pay for medical treatment for themselves or their dependant,
- the applicant would have been eligible for release under the primary compassionate ground if the expense had not been paid, and
- all or part of that loan remains unpaid, and the applicant is assessed as being unable to repay such a loan.
As a result of the ATO’s change in policy, it was agreed for the ATO to directly contact the complainant and request the relevant evidence required to determine whether the complainant was eligible for compassionate release on this basis.
Once the ATO contacted and obtained the relevant evidence from the complainant, the ATO made the decision to approve the complainant’s request for early release of superannuation on compassionate grounds to repay the loan that was obtained from a family friend to pay for the complainant’s surgery and medical expenses.
As a result of the IGTO’s investigation, the ATO has also agreed to review all of its internal guidance material and publicly available information to determine what changes are necessary to reflect this update to the ATO policy.