In recognition of the major financial impacts of COVID-19 to Self Managed Super Funds (SMSFs), the ATO has provided COVID-19 relief for SMSF trustees for the financial years FY 2019-20, 2020-21 and 2021-22. This is because of many trustees may find themselves or a related party of the fund providing or accepting certain types of relief which may traditionally have given rise to contravention of superannuation laws.
The COVID-19 health epidemic has also led to many countries placing travel bans and restrictions as well as the possibility that trustees have been stranded abroad for lengthy durations, which could impact the status of a funds’ residency status.
The following types of relief are available for SMSFs:
SMSF Residency Relief
If a trustee is stuck overseas due to COVID-19 and that causes them to be absent from Australia for longer than two years, it could impact whether your fund meets the residency requirements required to be an Australian super fund for tax purposes (and therefore, whether or not the fund is a compliant super fund that can be eligible for tax concessions).
In such a case, the ATO will continue to disregard compliance resources that determine whether a fund is considered to be Australian for tax purposes. This relief is conditional to the fact that there are no other changes to the SMSF or a trustee’s circumstances impacting the fund’s residency status.
The ATO Determination 2020 (COVID-19 Rental Income Deferrals – In House Asset Exclusion) covers this relief and intends to release a similar determination for the Financial Year 2021-22. This ensures that rental deferrals offered by the fund or a related party to a tenant doesn’t make the loan to be considered as in-house asset for current and future financial years. Until a determination for the Financial Year 2021-22 is released though, the ATO will adopt the compliance approach below.
If relief from rent provided by an SMSF or a related non-geared company/unit-trust to a tenant through reduction, waiver, or deferral is an infraction of the laws governing super funds, the ATO will not initiate any action to enforce compliance against the fund if:
- The relief is offered under commercial terms (having respect to the State and Territory COVID-19 assistance measures) because of the financial consequences of COVID-19; and
- The trustees have documented the arrangement.
Loan Repayment Relief
The ATO will not take any compliance action against funds that have offered repayment relief to a related or unrelated party if the relief is:
- Offered because of the financial consequences of COVID-19
- Offered under commercial terms; and
- Documented properly through changes to the loan agreement.
Internal asset assistance
If an SMSF surpassed the 5% asset in-house threshold at the end of June 2021 as a result of COVID-19’s financial consequences, trustees will need to make a plan in writing to reduce the market value of the fund’s in-house assets to less than 5 percent by June 30, 2022.
However, in the interim, the ATO won’t pursue any compliance actions against SMSFs if they have not successfully executed the plan by June 30, 2022 because of the financial implications of COVID-19. For instance, if trustees have not able to implement their plan due to the fact that the market hasn’t recovered in certain areas, or because the plan was unnecessary once the marked has stabilised.