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ATO to continue to go easy on SMSFs that provide or accept relief due to COVID-19

The Australian Taxation Office has extended the reprieve for SMSFs who effectively break SMSF laws by giving or receiving COVID-19-related relief.

Due to the virus’s ongoing financial impacts, fund trustees or related parties may still have “to provide or accept certain types of relief, which may give rise to contraventions under the super laws”, the ATO says.

In recognition of this, the ATO says it’ll effectively ignore SMSFs’ failure to comply with those laws in 2021–22.

This compliance relaxation, which applied in 2019–20 and 2020–21, covers the following types of relief:

Rental relief

The rental relief (including rental reductions, waivers and deferrals) must be:

  • offered on commercial terms (having regard to relevant state and territory COVID-19 support measures)
  • properly documented
  • supported by evidence provided to your SMSF’s auditor.

The ATO says a rental deferral offered by the fund or a related party will not cause a loan or investment to be an in-house asset in the current and future financial years.

Loan repayment relief

The loan repayment relief must be:

  • offered on commercial terms (having regard to the terms or relief offered by commercial lenders)
  • properly documented
  • supported by evidence provided to your SMSF’s auditor.

If the SMSF has a limited recourse borrowing arrangement in place with a related party and the lender offers loan-repayment relief, the ATO says it will accept that the parties are dealing with each other at arm’s length.

In other words, the repayments will not be treated as non-arm’s length income (NALI) and taxed at the maximum rate of 45%.

In-house asset relief

Funds that exceeded the 5% in-house asset threshold at 30 June 2021 must prepare a written plan to reduce the market value of the fund’s in-house assets to below 5% by 30 June 2022.

That said, the ATO will not punish any breaches — for example, if markets don’t recover and the plan can’t be executed; or if markets recover and the plan turns out to be unnecessary.

SMSF residency relief

If SMSF members are stranded overseas due to COVID-19 for more than two years, their fund is at risk of breaching the SMSF residency rules.

However, the ATO says it will not investigate any breaches, “provided there are no other changes in the SMSF or your circumstances affecting the other residency conditions”.

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This blog has been prepared by RJS Wealth Management Pty. Ltd. ABN 24 156 207 126. RJS Wealth Management Pty. Ltd. is a Corporate Authorised Representative (No. 438158) of Modoras Pty. Ltd. ABN 86 068 034 908 an Australian Financial Services and Credit Licensee (Number 233209). The information and opinions contained in this blog is general information only and is not intended to represent specific personal advice (Accounting, taxation, financial, insurance or credit). No individual’s personal circumstances have been taken into consideration for the preparation of this material. Any individual making a decision to buy, sell or hold any particular financial product should make their own assessment taking into account their own particular circumstances. The information and opinions herein do not constitute any recommendation to purchase, sell or hold any particular financial product. Modoras Pty Ltd recommends that no financial product or financial service be acquired or disposed of or financial strategy adopted without you first obtaining professional personal financial advice suitable and appropriate to your own personal needs, objectives, goals and circumstances. Information, forecasts and opinions contained in this blog can change without notice. Modoras Pty. Ltd. does not guarantee the accuracy of the information at any particular time. Although care has been exercised in compiling the information contained within, Modoras Pty. Ltd. does not warrant that the articles within are free from errors, inaccuracies or omissions. To the extent permissible by law, neither Modoras Pty. Ltd. nor its employees, representatives or agents (including associated and affiliated companies) accept liability for loss or damages incurred as a result of a person acting in reliance of this publication.