ATO’s COVID-related support for SMSFs

Because of the financial impacts of COVID-19, trustees of a self managed superannuation fund (SMSF), or a related party of the fund, may provide or accept certain types of relief, which may give rise to contraventions of the super laws. Some trustees may also have been stranded overseas because of travel bans, which can affect their fund’s residency status.

In recognition of these issues, the ATO is offering support and relief to SMSF trustees for the 2019–2020, 2020–2021 and 2021–2022 income years. Trustees must properly document the relief and provide their approved SMSF auditor with evidence to support it for the purposes of the annual SMSF audit.

Rental relief

An SMSF trustee, or a related party of the SMSF, may have offered rental relief to a tenant due to the financial impacts of COVID-19. The ATO offers the following related support:

• If rent was reduced or waived, the ATO will not take any compliance action against the fund and/or ask its approved SMSF auditor to report any contraventions, as long as the relief is provided on comparable terms to relief offered by other landlords to unrelated tenants in similar circumstances.
• If rent was deferred, relief granted by the ATO will ensure that the deferral does not cause a loan or investment to be an in-house asset of the fund in 2019–2020, 2020–2021 or 2021–2022, and future financial years, provided certain conditions are met.

Temporary changes to a lease agreement to provide for rental relief need to be properly documented, together with the reasons for those changes. It’s important to note that a formal variation of the lease may need to be executed.

In-house asset relief

If the value of the fund’s in-house assets exceeds 5% of the fund’s total assets as at 30 June of an income year, the fund trustees are required to prepare and execute a written plan to get those holdings below 5% by the end of the following income year.

However, if trustees have not been able to execute this type of plan because of the financial impacts of COVID-19:

• the ATO will not take any compliance action against the fund; and
• the fund’s approved SMSF auditor will not need to report any contravention of the in-house asset rules to the ATO.

Loan repayment relief

If a fund has offered loan repayment relief because the borrower was experiencing difficulty repaying the loan due to the financial impacts of COVID-19, the ATO will not take any compliance action and the approved SMSF auditor need not report any contravention of the super laws, provided:

• the relief is offered on commercial terms; and
• the changes to the loan agreement are properly documented.

Other relief

• SMSF residency relief – This may be available where a fund no longer satisfies the residency rules because the trustee/s were stranded overseas for an extended period.
• LRBA relief – This may be available if an SMSF has a limited recourse borrowing arrangement (LRBA) in place with a related party lender, and the lender has offered loan repayment relief to the fund due to the financial impacts of COVID-19.