SMSFs impacted by COVID-19 due to reoccurring or extended lockdowns in certain States and Territories will be granted extended relief to cover the 2021-2022 financial year. You can read more on this announcement on the ATO’s website.
SMSF residency relief
If you’re stuck overseas due to COVID-19, and this causes you to be out of Australia for more than two years, this may affect whether your fund meets some of the residency conditions to be an Australian super fund for tax purposes (and hence whether the fund is a complying super fund and entitled to receive tax concessions).
Provided there are no other changes in the SMSF or your circumstances affecting the other residency conditions, we will continue to not apply compliance resources to determine whether the fund meets the residency test.
The ATO will not take compliance action where an SMSF landlord (or a related non-geared company or unit trust) provides rental relief to a tenant in the form of a reduction, waiver or deferral. This is provided that the relief is:
- Offered on commercial terms (having regard to State and Territory COVID-19 support measures) due to the financial impacts of COVID-19, and
- Properly documented.
The ATO also plan to make a determination similar to Self-Managed Superannuation Funds (COVID-19 Rental income deferrals – In house Asset Exclusion) Determination 2020 for the 2021-22 financial year. This will ensure that a rental deferral offered by your fund or a related party to a tenant doesn’t cause a loan or investment to be an in-house asset in the current and future financial years.
Loan repayment relief
The ATO will not take compliance action if loan repayment relief is provided by an SMSF to a related or unrelated party due to COVID-19, and the relief is offered on commercial terms and the changes were properly documented.
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 impacts of COVID-19, the ATO will accept the parties dealing with each other at arm’s length, and the arrangement does not give rise to non-arm’s length income (NALI). The relief must be offered on commercial terms (having regard to the terms of relief offered by commercial lenders for real estate investment loans) and properly documented.
In-house asset relief
If an SMSF exceeded the 5% in-house asset threshold at 30 June 2021 due to the financial impacts of COVID-19, a rectification plan must be prepared to reduce the market value of the fund’s in-house assets to below 5% by 30 Jun e 2022. However, the ATO will not undertake compliance activity if the rectification plan cannot be executed by 30 June 2022 due to the financial impacts of COVID-19.
So what should you do next?
If you’re an SMSF trustee, make sure you properly document the relief and can provide your SMSF auditor proof to support the purposes of the annual SMSF audit.
Source: Australian Taxation Office