COVID-19 and SMSF: What You Need to Know
Article by Alex Cattell
COVID-19 has had an impact on many areas of life, and more recently on self-managed super funds (SMSFs). To keep you informed of changing measures by the ATO, we’ve compiled a list of COVID-19 and SMSF key issues below.
SMSF Early Release of Superannuation
When a member of your fund wants to access up to $10,000 of their superannuation early under the COVID-19 measures, there are some additional steps that trustees need to take. Trustees will need to ensure their deed allows for early release, the member has met the eligibility criteria for release, and ensure that no funds have been released until the release authority from the ATO has been received. This will be a 2019-20 audit area of focus.
COVID-19 and SMSF Tenant Rent Relief
Setting rent for a tenant that is less than market value in an SMSF is usually a breach of superannuation laws. If the rental relief is provided to a related party, then the situation can become trickier as the difference between the rent charged and the market value can amount to a loan and potentially put the fund in breach of the in-house asset rules.
However, to manage COVID-19 rent reductions for SMSF landlords, the ATO has stated that for the 2019-20 and 2020-21 financial years it will not take action where the rental relief is provided on arm’s-length terms. That is, the relief is in line with the National Cabinet Mandatory Code of Conduct for commercial leasing principles, has a set timeframe to it, and the reason for the relief and the relief provided is documented.
Relief for Related Party Loans
If your SMSF has a limited recourse borrowing arrangement in place with a related party, and that related party provides repayment relief, this would ordinarily be a breach of the superannuation rules. The ATO however will accept the relief if it is provided on reasonable terms similar to commercial banks (see the Australian Banking Association’s website for comparison), the relief and the reasons for it is documented, and is for a set period of time.
A Fall in Asset Values
If the assets of your SMSF have fallen in value, you should consider whether the current asset allocation is consistent with the fund’s investment strategy, and if the long-term goals of the fund continue to be met.
If you need to sell assets and make a capital loss, such as a loss on residential real estate, this loss can be offset against any capital gains. If the capital loss exceeds any gains, this loss can be carried forward and applied against future capital gains.
No deductions are available for unrealised gains (a fall in value for assets the fund continues to own).
Minimum pension payments
For funds drawing a pension, minimum draw down rates for the 2019-20 and 2020-21 years has been halved.
Contact SRJ Walker Wayland For More Information Regarding COVID-19 and SMSF
The changing landscape of COVID-19 and SMSF can be tricky to navigate. We’re here to help keep you informed of ATO and your available support options. If you have any questions, please feel free to contact our office by phone or via our website.