8 October 2021
Due to the ongoing economic impacts of COVID-19 on large parts of Australia, particularly those States and Territories that have had to endure lengthy lockdowns throughout the year, the ATO has announced the extension of various COVID-19 relief for SMSF trustees to the 2021-22 financial year. The relief previously only applied to the 2019-20 and 2020-21 financial years.
To be a complying super fund and receive tax concessions, SMSFs must be an “Australian super fund” at all times during the year. This requires, among other things, for the central management and control of the SMSF (i.e. individual trustees, or directors of a corporate trustee) to ordinarily be in Australia. The fund will still meet this requirement even if its central management and control are temporarily outside Australia for up to 2 years.
Obviously, with the Australian borders pretty much closed during the entirety of the pandemic and many other countries imposing travel bans, some individual trustees or directors of a corporate trustee may be stranded in another country over the two-year limit through no fault of their own.
In these situations, provided there are no other changes in the SMSF or the circumstances of the individual trustee (or directors of the corporate trustee) affecting other residency conditions, the ATO has indicated it will not apply compliance resources to determine whether a fund meets the residency test.
Suppose your SMSF or a related party has continued to provide rental relief based on the current market conditions, whether a rental reduction, waiver or deferral to a tenant. In that case, the ATO will provide relief in not taking any compliance action against the fund. However, this is predicated on the rental relief offered on commercial terms and proper documentation regarding the arrangement.
The ATO notes that not taking compliance action is only an interim measure. In due course, it will be deciding similar to the one made last year to ensure that rental deferrals offered by SMSFs or related parties to a tenant do not cause a loan or investment to be an in-house asset in future financial years.
For loan repayment relief provided by SMSF to a related or unrelated party due to the financial impacts of COVID-19, where the relief is offered on commercial terms and the changes to the loan agreement are properly documented, the ATO will provide interim rental relief (i.e it will not take any compliance action against the fund). This will also apply to limited recourse borrowing arrangements.
Lastly, where an SMSF exceeds the 5% in-house asset threshold on 30 June 2021 due to the financial impacts of COVID-19, trustees must still prepare a written plan to reduce the market value of the fund’s in-house assets to below 5% by 30 June 2022.
However, the ATO said it will not take any compliance action where the plan has not been executed by the due date (i.e 30 June 2022) as a result of the market not having recovered, or in some cases, the plan may be unnecessarily owing to the recovery of the market.
Make your life easier
If you are a trustee of an SMSF and have been affected by COVID-19 or have had members of the fund involved, we can help you work out the potential tax implications and put the proper documentation in place. Take the complexity out of the administrative burdens of your SMSF, talk to the experts at our offices or email enquiries@rm.net.au
**The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.
