Ending of relief measures
As this relief ended on 30 June 2022, for the 2022–23 income year and later years:
- we expect trustees to now comply with their obligations under the income tax and super laws previously covered by the relief
- approved SMSF auditors must report contraventions to us via the Auditor/actuary contravention report (ACR) where the reporting criteria is met.
If contraventions occur, trustees should use our voluntary disclosure service and make a plan to rectify the contravention as soon as possible. We take any voluntary disclosures into account when determining what actions we will take.
Impact of COVID-19 on SMSF trustees
We understand that COVID-19 continues to have a significant financial effect on SMSFs, particularly in some States or Territories where there have been reoccurring and prolonged lockdown periods.
As a result, you may still find yourself in a position where you (in your role as trustee of an SMSF), or a related party of the fund, are having to provide or accept certain types of relief, which may give rise to contraventions under the super laws.
COVID-19 has also resulted in many countries imposing travel bans and restrictions, and you may have become stranded overseas for long periods, which can affect your fund's residency status.
In recognition of this, we are offering support and relief to SMSF trustees for the 2019–20, 2020–21 and 2021–22 income years.
You must properly document the relief and provide your approved SMSF auditor with evidence to support it for the purposes of the annual SMSF audit.
SMSF residency relief
If you're stranded overseas due to COVID-19, and this causes you to be out of Australia for more than 2 years, this may affect whether your fund meets some of the residency conditions to be an Australian super fund for tax purposes.
Your SMSF must be an Australian super fund at all times during the income year to be a complying super fund and receive tax concessions.
To be an Australian super fund under the tax laws an SMSF must meet three residency conditions, see Check your fund is an Australian super fund.
In particular, being overseas for an extended period may affect whether the:
- central management and control of the fund is ordinarily in Australia
- fund satisfies the 'active member' test.
Provided there are no other changes in the SMSF or your circumstances affecting the other residency conditions, we will not take any compliance action to determine whether the fund meets the residency test.
For more information, see TR 2008/9 Income tax: meaning of 'Australian superannuation fund' in subsection 295-95(2) of the Income Tax Assessment Act 1997.
Rental relief
Due to the ongoing financial effects of COVID-19, your fund, or a related party of your fund, may have offered rental relief to a tenant in the form of a rental deferral, reduction or waiver.
This relief may have been provided as part of the COVID-19 support measures offered by the States and Territories, including those introduced to give effect to the principles of the National Cabinet Mandatory Code of Conduct.
As charging a tenant less than market value rent usually contravenes the super laws, we are offering the following rental relief, provided certain conditions are met.
Rental reductions and waivers
Rental relief provided by a SMSF, or a related party of the fund (non-geared company or unit trust), to a tenant in the form of a reduction or waiver ordinarily gives rise to reportable contraventions of the super laws.
For example, the arrangement may:
- not comply with the sole purpose test and/or arm's length requirements
- contravene the prohibition on providing financial assistance to a member or a member's relative.
However, we will not take any compliance action against your fund and/or ask your approved SMSF auditor to report any contraventions to us provided:
- the relief is on commercial terms, that is, it is provided on comparable terms to relief offered by other landlords to unrelated tenants in similar circumstances (having regard to the State and Territory COVID-19 support measures)
- the relief is offered due to the financial impacts of COVID-19
- you have properly documented the arrangement.
Rental deferrals
If your fund, or a related party of the fund, offered rental deferral relief to a tenant, this may give rise to contraventions of the in-house asset rules in the super laws.
This is because:
- a rental deferral provided by your fund to a related party tenant is considered a loan to the related party, which would ordinarily be an in-house asset of the fund
- if your fund has an investment in a related non-geared company or unit trust that is exempt from being an in-house asset under the super laws, and the related party provides a rental deferral to a tenant, this will cause the exemption to cease and the investment to become an in-house asset.
If the value of the asset, or the total value of the fund's in-house assets, exceeds the 5% in-house asset threshold at the end of the income year, the fund ordinarily needs to dispose of the asset, or the excess before the end of the next income year.
For the 2019–20 and 2020–21 income years we are offering the rental relief set out in Self-Managed Superannuation Funds (COVID-19 Rental income deferrals – In-house Asset Exclusion) Determination 2020External Link.
For the 2021–22 income year the rental relief is set out in Superannuation Industry (Supervision) Self-Managed Superannuation Funds (COVID-19 Rental Income Deferrals – In-House Asset Exclusion) Determination 2022External Link.
These determinations ensure that a rental deferral offered by your fund, or a related party, to a tenant during the 2019–20, 2020–21 or 2021-22 income years does not cause a loan or investment to be an in-house asset of the fund in those income years, and future financial years, provided certain conditions are met.
Documenting the rental relief
Temporary changes to a lease agreement to provide for rental relief need to be properly documented, together with the reasons for those changes.
You can do this using a signed trustee minute. However, we consider it prudent to document the changes with an agreement signed by both parties, which can be attached as an addendum to the existing lease agreement.
You should also review the existing agreement in case a formal variation of the lease needs to be drafted, or a lease renewed to give effect to the rental relief.
You must comply with the new lease arrangement to ensure the fund is not in breach of the super laws.
In-house asset relief
If the value of your fund's in-house assets exceeds 5% of the fund’s total assets as at 30 June of an income year, the 'in-house asset rules' in the super laws ordinarily require you to prepare and execute a written plan to reduce the market value ratio of the fund's in-house assets to below 5% by the end of the following income year.
We understand that the downturn in the market due to COVID-19 may have caused:
- your fund's assets to drop in value, and
- the value of your fund's in-house assets to exceed the 5% threshold as at 30 June of the 2019–20, 2020-21 or 2021–22 income years.
The financial impacts of COVID-19 may have also made it difficult for you to execute a plan to dispose of the excess by 30 June of the following year. For example, you may be unable to execute the plan because the market has not recovered in some areas, or it may be unnecessary to implement it as the market has recovered.
Where this is the case, you must still prepare a written plan to reduce the market value of your fund's in-house assets to below 5% by 30 June of the following year.
However, if you have not been able to execute it by that date due to the financial impacts of COVID-19:
- we will not take any compliance action against your fund
- your approved SMSF auditor will not need to report any contravention of the in-house asset rules to us.
Loan repayment relief
Repayment relief provided by SMSF
We understand that in some situations your fund may have offered loan repayment relief in relation to a loan made to a related or unrelated party who was experiencing difficulty repaying the loan due to the financial impacts of COVID-19.
Such repayment relief may ordinarily give rise to contraventions of the super laws (for example, because the arrangement does not meet the sole purpose test and/or comply with the arm's length requirements).
If the loan repayment relief is provided due to the financial impacts of COVID-19, the relief is offered on commercial terms and the changes to the loan agreement are properly documented:
- we will not take any compliance action against your fund
- your approved SMSF auditor will not need to report any contravention of the super laws to us.
Where the loan is made to a related party, the loan will be an 'in-house asset' of the fund. Our in-house asset relief will apply to any potential contravention of the 'in-house asset' rules if the fund's 5% in-house asset threshold is exceeded as a result of providing the loan repayment relief.
For more information, see Non-arm's length Income.
SMSF limited recourse borrowing arrangement relief
If your SMSF has a limited recourse borrowing arrangement (LRBA) in place with a related party lender, the lender may have offered loan repayment relief to the fund due to the financial impacts of COVID-19.
If the relief is not offered on arm's length terms, this may ordinarily give rise to a contravention of the super laws. The non-arm's length income rules may also apply.
We will accept the parties are dealing with each other at arm's length, and the arrangement does not give rise to non-arm's length income, provided:
- the relief is offered on commercial terms (having regard to the terms of relief offered by commercial lenders for real estate investment loans)
- you have properly documented the changes to the loan agreement.
You must document any changes in terms to the loan agreement and the reasons why those terms have changed. We also expect that interest continues to accrue on the loan and that you will repay any deferred principal and interest repayments in accordance with the varied terms.
If your fund has entered into a LRBA with a related private company and repayment relief has been given in relation to a Division 7A loan, additional relief applies in relation to the capitalisation of interest and minimum yearly repayments – see Interaction with Division 7A and administrative relief for minimum yearly repayments.
Information on the support and relief available for SMSFs during COVID-19.