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Pre-COVID Legislation 

Post COVID Legislation 

2020 & 2021 FY Requirements  

Post 2021 FY Considerations 

Rental Income / Rent Relief 

It would be expected for a fund to receive rent based upon the lease agreement / rental terms at an arm’s length rate that can be independently supported.  

Rent free periods can still be provided but would only occur in particular circumstances. 

An example would be the commencement of a commercial lease whereby a 2-month rent free period is provided to secure the tenant.  

Where an SMSF holds property and the tenant is unable to meet their rental obligations due to the financial effects from COVID-19, rent relief can be provided in the form of: 

1. Temporary rent reduction,  

1. Waivered rent for agreed period, or 

1. Deferred rent with agreed payment dates 

Where rent relief is being provided to a tenant, ensure you have the following documentation on file to assist with the audit:

1. Documentation confirming the tenant was affected by COVID-19. – An example of this could be evidence showing the tenant was receiving job keeper payments. 

1. Documentation confirming details of the rental relief. 

   – This may include an updated lease agreement, addendum to a lease agreement or a separately prepared document that outlines the agreed terms and is signed by both parties 

All forms of rent relief should cease by 30 June 2021.  

After this date, you need to remember that COVID will not be a valid reason for any rental relief provided, therefore, it is encouraged to ensure rent is being paid at an arm’s length rate at this point.  

Failure to do so may give rise to a breach in s.109 of the SIS Act due to the arrangement not being maintained on an arm’s length basis.  

LRBA/Loan Repayment Relief 

Related party providing SMSF LRBA relief

For any LRBA established by the fund and the fund is borrowing from a related party, it would be encouraged for the loan to satisfy the ATO Safe Harbor Provisions. Principal and Interest would be paid monthly with no form of relief provided.  

SMSF providing loan repayment relief 

Loan would be established at an arm’s length rate whereby the fund would receive both principal and interest payments (depending on the terms established).  

Related party providing SMSF LRBA relief

Loan repayment relief can be provided to an SMSF where it can be justified the fund is affected by COVID-19 and therefore unable to meet their payment obligations.  

Relief provided must reflect similar terms to what commercial banks are currently offering for real estate investment loans. 

SMSF providing loan repayment relief 

Where an SMSF has loaned money on commercial terms to an unrelated party or a related party where the loan does not breach the in-house asset rules or section 65, repayment relief can be provided, providing the borrower can show they have been affected by COVID-19. 

Note in both cases it is expected that interest will continue to accrue and is capitalized on the loan. 

The following is recommended to be provided to your auditor where repayment relief is provided:

1. Evidence to confirm why the borrower is unable to meet their payment obligations (example, loss of rental income due to rent relief provided)

    

1. Documentation confirming the adjusted repayment terms. Ensure all parties’ sign. 

    

1. Evidence showing what the adjusted repayment terms were based (Example could be rates that the ABA list on their website)  

All forms of loan repayment relief should cease at 30 June 2021.  

For LRBA arrangements this means ensuring the arrangement meets the terms that were established prior to any relief given.  

For any loans made by the SMSF, ensuring the original terms of the loan are being followed is also imperative.  

Failure to make the above changes may result in your auditor lodging an auditor’s contravention report under s.109 of the SIS Act due to the arrangement not being maintained on an arm’s length basis. 

In-house Asset Relief 

Where a fund has an in-house asset that exceeds 5% of the fund’s total assets, the breach must be reported to the ATO via an auditor’s contravention report. 

Where a fund has an in-house asset at 30 June 2019 that exceeds the permitted 5% threshold and is unable to reduce this to a level that is acceptable (i.e. less than 5% of fund’s total assets) the ATO is not required to be notified via an auditor’s contravention report, providing it can be supported COVID-19 caused the delay in rectification. 

This will be the same if an in-house asset is present at 30 June 2020 and is unable to be rectified by 30 June 2021.   

The following must be provided where an in-house asset is unable to be reduced to an allowable level for the 2020 or 2021 FY: 

1. Plan of rectification that considers the delay in rectification due to COVID-19

    

1. Supporting evidence showing COVID-19 effected the ability for the in-house asset to be rectified.  

If the in-house asset is not reduced to a level that is permitted (I.e. less than 5% of fund’s total assets) by 30 June 2021, it may result in an auditor’s contravention report being issued for a breach of the in-house asset provisions.  

Note, if the in-house asset is reduced to less than 5% during the 2022 FY whereby at 30 June 2022 it remains at an acceptable level, the fund is not in breach of the in-house asset provisions.  

Under s.82 and 83 of the SIS Act, in-house assets are tested at two points being acquisition and at 30 June. 

General practice would result in an auditor issuing and auditors contravention report for “completeness”, however, technically it would not be required. 

Early Release due to COVID-19 

Early access of a super is prohibited unless the member satisfies a certain condition of release. Further information can be found here. 

From 20 April 2020, SMSF members were able to access up to $10,000 before 1 July 2020 and up to a further $10,000 from 1 July 2020 until 24 September 2020 providing, they were impacted by COVID-19.  

The members are required to make a request via MyGov whereby a determination would be provided by the ATO shortly after.  

Provide a copy of the approved determination made by the ATO to your auditor for the payment to be deemed a complying transaction.  

After 24 September 2020, early release of $10,000 will not be available unless a condition of release has been met.  

Where amounts have been withdrawn from super and a condition of release has not been met, the fund will be in breach of s.62 of the SIS Act (sole purpose test).