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COVID-19 and your SMSF

August 2020

COVID-19 has had an impact on many SMSFs. We look at the key issues.

One of the key elements of the Government's stimulus package was enabling Australians to access their superannuation early, however the impact of early access along with many other issues are having an impact on SMSFs.

Early release of superannuation

When a member of your fund wants to access up to $10,000 of their superannuation early under the COVID-19 measures, there are some additional steps that trustees need to take.

Trustees will need to ensure their deed allows for early release, the member has met the eligibility criteria for release, and ensure that no funds have been released until the release authority from the ATO has been received. This will be a 2019-20 audit area of focus and we strongly advise seeking the guidance of your accountant as early as possible if you've released super early for your members.

Tenant Rent Relief

Setting rent for a tenant that is less than market value in an SMSF is usually a breach of superannuation laws, however as the Government has urged landlords and tenants to negotiate rents, there are some considerations you must make.

If the rental relief is provided to a related party, then the situation can become tricky as the difference between the rent charged and the market value can amount to a loan and potentially put the fund in breach of the in-house asset rules.

However, to manage COVID-19 rent reductions for SMSF landlords, the ATO has stated that for the 2019-20 and 2020-21 financial years it will not take action where the rental relief is provided on arms-length terms.

That is, the relief is in line with the National Cabinet Mandatory Code of Conduct for commercial leasing principles, has a set timeframe to it, and the reason for the relief and the relief provided is documented.

We strongly advise you to seek guidance from your accountant in these circumstances.

Relief for related party loans

If your SMSF has a limited recourse borrowing arrangement in place with a related party, and that related party provides repayment relief, this would ordinarily be a breach of the superannuation rules.

The ATO however will accept the relief if it is provided on reasonable terms similar to commercial banks (see the Australian Banking Association's website for comparison), the relief and the reasons for it is documented, and is for a set period of time.

A fall in asset values

If the assets of your SMSF have fallen in value, you should consider whether the current asset allocation is consistent with the fund's investment strategy, and if the long-term goals of the fund continue to be met.

If you need to sell assets and make a capital loss, such as a loss on residential real estate, this loss can be offset against any capital gains. If the capital loss exceeds any gains, this loss can be carried forward and applied against future capital gains.

No deductions are available for unrealised gains (a fall in value for assets the fund continues to own).

To understand the tax implications of your SMSF investment strategy, please contact your accountant before you make any changes to your SMSF.

Minimum pension payments

For funds drawing a pension, minimum draw down rates for the 2019-20 and 2020-21 years has been halved. 

Age

Default min. drawdown rates

2019-20 & 2020-21 reduced rates

Under 65

4%

2%

65-74

5%

2.5%

75-79

6%

3%

80-84

7%

3.5%

85-89

9%

4.5%

90-94

11%

5.5%

95 or more

14%

7%


SMSFs are complex instruments and we strongly advise anyone planning to make changes to speak to their accountant for guidance before enacting those changes. Contact us on 02 9957 4033.

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Disclaimer

This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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