ATO extends COVID-19 relief measures for SMSFs

SMSF trustees that are financially impacted due to COVID-19 because of extended lockdowns in certain States and Territories will be granted extended relief to cover the 2021-22 financial year.

The relief was originally offered by the ATO to SMSFs for the 2019-20 and 2020-21 financial years where certain situations may have caused SMSF trustees to contravene the superannuation laws.

For example, a SMSF trustee may have provided or accepted certain types of relief, such as giving a tenant/s (including a related party tenant) a reduction in rent if they were financially impacted due to COVID-19. As charging a price that is less than market value will usually give rise to contraventions under the superannuation laws, the relief measures will avoid this outcome if the arrangement meets certain criteria (ie, the relief is offered on commercial terms and the arrangement is documented, etc).

The relief measures available

In September, the ATO announced it would extend the several types of relief to SMSF trustees for 2021-22: see table below.

Actions required for SMSF trustees

SMSF trustees must ensure they properly document the relief and can provide their approved SMSF auditor with evidence to support it for the purposes of the annual SMSF audit.

When documenting any changes, providing the reasons
for change will help the SMSF auditor when they use
their judgement to determine whether relief is offered on commercial terms due to the financial effects of COVID-19.

It is also good practice to document any changes by way of a minute or a renewed lease agreement or other documentation.

“ We understand that COVID-19 continues to have a significant financial effect on self-managed super funds (SMSFs), particularly in some States or Territories where there are reoccuring and prolonged lockdown periods.

As a result, you may still find yourself in a position where you (in your role as trustee), or a related party of the fund, are having to provide or accept certain types of relief, which may give rise to contraventions under the super laws.

The COVID-19 health crisis has also resulted in many countries imposing travel bans and restrictions, and you may have become stranded overseas for long periods, which can have an effect on your fund’s residency status.

In recognition of this, we have extended the following types of relief, currently offered for the 2019-20 and 2020-21 financial years, to cover the 2021–22 financial year.

You must ensure you properly document the relief and can provide your approved SMSF auditor with evidence to support it for the purposes of the annual SMSF audit.

Australian Taxation Office

Type of COVID-19 relief available ATO compliance approach
SMSF residency relief If SMSF trustees are stranded overseas due to COVID-19 and this causes them to be out of Australia for more than two years, this may affect whether their fund meets some of the residency conditions to be an Australian superannuation fund for tax purposes (and hence whether the fund is a complying superannuation fund and entitled to receive tax concessions).

The ATO will not take any compliance action to determine whether the SMSF meets the relevant residency conditions.

Rental relief Rental relief provided by a SMSF (or a related non-geared company or unit trust) to a tenant in the form of a reduction, waiver or deferral may give rise to a contravention of the superannuation laws.The ATO will not take any compliance action against an SMSF in these circumstances if:

  • The relief is offered on commercial terms (having regard to State and Territory COVID- 19 support measures), and
  • The SMSF trustee has properly documented the arrangement.
Loan repayment relief Where SMSF is the lender and provides relief 

If loan repayment relief is provided by a SMSF to a related or unrelated party due to the financial impacts of COVID-19, this may give rise to a contravention of the superannuation laws.

The ATO will not take compliance action against a SMSF where the relief is offered on commercial terms and the changes to the loan agreement are properly documented.

Where SMSF is the borrower and receives relief

If an SMSF has a limited recourse borrowing arrangement (LRBA) in place with a related party and the lender offers loan repayment relief to the fund due to the financial impacts of COVID-19, this may give rise to a contravention of the superannuation laws.

The ATO will accept the parties are dealing with each other at arm’s length, provided:

  • The relief is offered on commercial terms (having regard to the terms of relief offered by commercial lenders for real estate investment loans), and
  • The SMSF trustee has properly documented the changes to the loan agreement.
In-house assets relief If an SMSF exceeded the 5% in-house asset threshold at 30 June 2021 due to the financial impacts of COVID-19, the trustee is required to prepare a written plan to reduce the market value of the fund’s in-house assets to below 5% by 30 June 2022.

The ATO will not take any compliance action against an SMSF where the trustee is unable to execute the plan by 30 June 2022 because the market has not recovered in some areas, or it may be unnecessary to implement it as the market has recovered.

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