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  • Addendum: Auditor contravention reporting instructions specific to the 2019–20, 2020–21 and 2021–22 financial years due to the impacts of COVID-19

    Due to the financial impacts of COVID-19, SMSF trustees found themselves having to provide or accept certain types of relief which may or may not give rise to contraventions under the superannuation laws.

    This addendum to the ACR instructions applies to the 2019–20, 2020–21 and 2021–22 financial years only. It covers the following 5 areas of relief:

    • providing rental relief
    • loan repayment relief, including limited recourse borrowing (LRBA) repayment relief
    • in-house asset relief
    • market valuations
    • early release of super on compassionate grounds due to COVID-19 (only relevant for the 2019–20 and 2020–21 financial years).

    It provides you with guidance and examples on when contraventions will arise as a result of the relief and advises which ones to report to the Commissioner in the ACR for the 2019–20, 2020–21 and 2021–22 financial years where the reporting criteria is met.

    Providing rental relief

    Some SMSF trustees who are landlords have given their tenants rental relief as a rent reduction, waiver or deferral because of the financial effects of COVID-19. A related party (company or unit trust) the fund has an investment in may also offer rental relief to a tenant.

    In these situations, the following contraventions of the SISA could arise.

    • Section 109 – if the rental relief has been offered on non-arm's length terms.
    • Section 62 – if the SMSF trustee is offering rental relief on non-arm’s length terms to assist a related or non-related party.
    • Section 65 – if rental relief is offered to a member or relative of the member, either directly or indirectly, it can amount to providing financial assistance even where it is provided on an arm's length basis (see Self-Managed Superannuation Funds Ruling SMSFR 2008/1).
    • Section 84 – if a rental deferral is offered because of the financial impacts of COVID-19 it can meet the definition of a loan (see paragraphs 10 and 11 of Self-Managed Superannuation Funds Ruling SMSFR 2009/4) and may have in-house asset implications if the deferral is offered on non-arm's length terms.      
      • Where a rental deferral is offered directly to a related party on non-arm's length terms, any resulting loan will be an in-house asset of the fund. If a rental deferral is offered to a tenant on non-arm's length terms by a regulation 13.22B or 13.22C entity (company or unit trust) the fund has an investment in, this will also cause that investment to become an in-house asset. This may give rise to a contravention of the in-house asset provisions.
      • Where the rental deferral has been provided on arm's length terms during the 2019–20, 2020–21 and 2021-22 financial years, the relevant asset will not be an in-house asset in these and all future financial years. This is provided the following apply:  
      • Where these determinations apply in relation to rental deferral relief, there is no in-house asset that may give rise to a contravention of section 84 for you to consider reporting.
      • Where the fund has invested in a regulation 13.22B or 13.22C entity and the company or trustee of the unit trust has offered a rental waiver or reduction that is not on arm's length terms, this can trigger an event in regulation 13.22D(l) resulting in the fund's investment becoming an in-house asset in the current and future financial years.
       

    Where rental relief satisfies the 3 requirements below, that is, where it is on commercial terms, due to the financial impacts of COVID-19 and appropriately documented, a section 109 or section 62 contravention will not arise.

    Where there has been a contravention of section 65 due to the provision of rental relief to a member or a relative of the member that meets the 3 requirements, you are not required to report this contravention. This is because our compliance approach for the 2019–20, 2020–21 and 2021–22 financial years is that we will not take action against this type of breach.

    1. Commercial terms

    Where the rental relief offered by the trustee is commensurate with rental relief being offered by other landlords to unrelated tenants in similar circumstances, a section 62 and section 109 contravention will not arise. You can use your professional judgment in forming an opinion on the commerciality of the arrangement.

    Depending on when the rental relief was offered, the National Cabinet Mandatory Code of Conduct (national code), which was given effect through various state or territory legislation from a date following 3 April 2020, can also be used to provide assistance on whether the relief arrangement is commercial.

    The national code contained a set of good faith leasing principles applicable to all commercial tenancies that suffered financial stress or hardship as a result of the COVID-19 pandemic as defined by their eligibility for the Commonwealth Government’s JobKeeper scheme. However, the principles of the national code still applied in spirit to all leasing arrangements for affected businesses, having fair regard to the size and financial structure of those businesses, including non-commercial leases where the relief was provided on commercial terms.

    When the national code was introduced, the state and territory jurisdictions introduced measures to help landlords and tenants during the coronavirus crisis. It was also expected that the states and territories give effect to the national code through relevant state and territory legislation and regulations as appropriate. The national code was not intended to supersede such legislation but aimed to complement it during the COVID-19 crisis period.

    The national code principles remained in place for the period the Commonwealth JobKeeper program was operational, which ceased on 28 March 2021.

    The national code, and related state and territory rules, can be used to help determine whether the arrangement entered into is commercial while they were in effect.

    Some key requirements to note when applying the national code are as follows:

    • The tenant will need to self-assess whether they have been adversely impacted and a rental tenancy relief request made in writing.
    • Rental relief is provided in proportion to the loss of income experienced from the COVID-19 crisis and where a tenant is insolvent, the tenant may not be liable to pay rent.
    • It will apply to negotiating any amendments to existing leasing arrangements in good faith, including where the parties are related.
    • The tenant should stay committed to lease terms, subject to any amendment. The parties may have drafted an amended lease agreement for rental relief due to COVID-19 for a term of up to 6 months, consistent with the period allowed by banks for the deferral of loan repayments for small businesses who need assistance because of COVID-19.
    • The tenant will need to be current with their rental payments and not in arrears as of 1 January 2020, consistent with banking requirements in relation to loan repayment relief.
    • Rental relief arrangements should be comparable with other similar lease agreements and in line with COVID-19 market conditions.

    We appreciate that the national code is no longer in effect for rental relief. However, it is possible that trustees may have offered rental relief to tenants between 28 March 2021 and 30 June 2021. They may also be offering similar relief (if they can still demonstrate that the relief is provided due to the financial impacts of COVID-19) during the 2021–22 financial year, as part of transitional COVID-19 support measures provided by the states and territories. Where this is the case, auditors can use the state and territory transitional support measures as a guide to determining whether any rental relief has been offered on arm's length terms. Otherwise, auditors can use their own professional judgment when determining whether rental relief is offered on commercial terms due to the financial effects of COVID-19.

    Details about relief that may be available, including government assistance in each state or territory, can be found at COVID-19 financial support for businessExternal Link information on the business.gov.au website.

    When applying the national code or individual state or territory requirements, including transitional support measures, to determine whether rental relief is commercial, you should ensure you apply the relevant requirements that existed at the time the SMSF trustee provided the relief. This would allow for any amendments made to the various documents over time.

    2. Rental relief must be offered as a result of the impacts of COVID-19

    If the trustee offered rental relief to a tenant but there is no evidence of the tenant being impacted by COVID-19, then it has not been offered in good faith. Relevant contraventions must be reported if they meet the reporting criteria. An example of evidence that meets this requirement is the tenant's confirmation of registration or monthly declaration for the JobKeeper scheme.

    3. Appropriate documentation must be put in place reflecting the rental relief arrangement

    If there are temporary changes to the terms of the lease agreement in response to COVID-19, it is important that the parties to the agreement document the changes and the reasons for the change. The trustees can do this with a signed minute (where, for example, the trustees and the tenant are related parties).

    However, it is prudent to give effect to the changes by way of an agreement signed by both the parties and attach it as an addendum to the lease. It is also important to review the lease agreement as this may require a formal variation of the lease to be drafted or a renewed lease agreement. The documentation must also be executed contemporaneously once varied terms are agreed to by the parties. The parties must then adhere to the new lease arrangement to ensure the fund is not in breach of section 109 and section 62 of the SISA.

    In-house assets and rental deferral relief (including by a Division 13.3A entity)

    If a fund offers a rental deferral directly to a related party, this is considered a loan from the fund to the related party (see paragraphs 10 and 11 of Self-Managed Superannuation Funds Ruling SMSFR 2009/4) which would ordinarily be an in-house asset of the fund.

    If a fund has an investment in a related party that is exempt from being an in-house asset under paragraph 71(1)(f) of the SISA due to the operation of Division 13.3A of the SISR (regulation 13.22B and 13.22C), and the related party offers a rental deferral to a tenant under a lease, this will trigger a regulation 13.22D event, causing:

    • the exemption to cease, and
    • the fund to acquire and hold an in-house asset.

    This is because the rental deferral amounts to a loan from the related party to the tenant and the exemption provided by regulation 13.22B or 13.22C of the SISR ceases if the related party provides a loan to another entity – see subparagraph 13.22D(1)(b)(ii) of the SISR.

    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 financial year, the fund would ordinarily need to dispose of the asset, or the excess before the end of the next financial year.

    The following Legislative Instruments affect the application of in-house asset rules for the 2019–20, 2020–21 and 2021–22 financial years:

    Under these determinations, made for the purposes of paragraph 71(1)(f), the resulting asset is not an in-house asset of the fund for the 2019–20, 2020–21 and 2021–22 financial years, nor any future financial years provided the following conditions are met:

    • The fund allows a related party tenant a deferral of rental income under a lease agreement (on arm’s-length terms) due to the financial impacts of COVID-19.
    • The fund holds an investment in a related party (related company or unit trust) which is exempt from being an in-house asset due to the operation of regulation 13.22B or regulation 13.22C, and that related party allows a tenant a deferral of rental income under a lease (on arm's length terms) due to the financial impacts of COVID-19.

    It also only applies where none of the other events in regulation 13.22D are triggered during one or more of the 2019–20, 2020–21 and 2021–-22 financial years.

    Extra care should be taken to ensure the parties remain dealing at arm’s length. This is because failure to do this can amount to an event under paragraph 13.22D(1)(l) of the SISR.

    Where the determinations apply, SMSF auditors will not be required to report a contravention to us or to advise trustees of the contraventions which would otherwise result, in relation to the 2019–20, 2020–21, 2021–22 or future financial years.

    The determinations do not apply to rental waivers or reductions as this type of relief does not of itself give rise to an in-house asset. We won't be taking any compliance action for the 2019–20, 2020–21 and 2021–22 financial years if a fund gives a tenant, even one who is also a related party, a temporary rent reduction or waiver on arm's length terms because of the financial effects of COVID-19.

    Where the fund has invested in a regulation 13.22B or 13.22C entity and the company or trustee of the unit trust has offered a rental waiver or reduction that is not on arm's length terms, this can trigger an event in paragraph 13.22D(1)(l). If this occurs, the in-house asset exemption will cease, resulting in the fund's investment becoming an in-house asset in the current and future financial years.

    When should you report contraventions for rental relief?

    You should only report a contravention if it meets the reporting criteria and you are not satisfied that all the following requirements have been met:

    • the relief offered by the SMSF trustee or interposed entity was on commercial terms
    • the relief has been offered due to the adverse financial impacts of COVID-19
    • the relief arrangement was adequately documented.

    In this case, report the contravention and explain in the ACR why you think there is a breach. You will also need to consider whether you qualify Part B of the audit report and you will need to communicate the issue to the trustee as per section 129 of the SISA.

    If we subsequently find the relief was genuinely provided as a result of COVID-19 then we won’t take compliance action against the fund.

    We will also not apply the non-arm’s length income (NALI) rules where SMSF trustees were able to provide rental relief, however the tenant did not request or require the relief.

    Example: providing rent relief to a related party on commercial terms

    John and Sue are the individual trustees of the John & Sue SMSF. Their SMSF owns the property from which they also run a restaurant business together. Each month they pay their SMSF $1,200 in rent under the lease.

    Due to the impacts of COVID-19, John and Sue were required to close their restaurant temporarily. The business was eligible for JobKeeper as they suffered a 40% reduction in turnover. However, they struggled to maintain their lease payments, therefore they request their SMSF provide proportionate rent relief of 40% for a 6-month period commencing 10 April 2020.

    The national code for SME commercial leasing principles during COVID-19 guides in determining whether the relief is on commercial terms applies. John and Sue met the code requirements as the SMSF related-party tenant both qualified for the JobKeeper scheme and met the standard of arm’s-length dealing. The national code required that John and Sue be offered rent relief proportionate to the reduction in turnover of 40%, however at least 50% of the relief must be by way of a waiver with any balance being a deferral. Accordingly, the minimum rent relief is a 20% waiver and 20% deferral of rent.

    John and Sue, in their capacity as trustees of their SMSF, agreed to temporary rent relief based on the financial impacts COVID-19 had on the restaurant and their ability to meet their lease payments. They immediately drafted and signed an agreement in their respective capacities (that is, where the trustees of the SMSF are the landlord and John and Sue are the tenants). This acknowledged the request for rental relief, the reasons relief was given and the varied terms for the next 6 months with a right to review at the time. The rent remains at arm’s length through the period. No contravention of section 62, section 84 or section 109 of the SISA occurred and the auditor is not required to report the section 65 contravention in the ACR.

    Note: If John and Sue’ s business had suffered a reduction in turnover of only 20% and they were not eligible for JobKeeper, they would not have been covered under the national code. However, they could still reach an arm’s-length agreement for rent relief proportionate to the reduction in turnover if they could show that their business was negatively affected by COVID-19.

    End of example

     

    Example: providing rent relief that is not on commercial terms

    Ned’s SMSF rented an investment property to his friend Bill for the last 5 years. Bill always paid a commercial amount of rent based on the property’s value. At the start of the 2019–20 financial year, Bill had a steady job as manager of a supermarket. However, he started to incur some large personal debts and fell behind on his rental payments from August 2019 onwards. Ned told him that he can just catch up when he can afford the payments.

    By the end of June 2020 Bill still had not caught up on the rental arrears payments. He asked Ned if he can just waive the payments because he heard other landlords are doing that due to COVID-19. Bill was not financially impacted by COVID-19. Ned agreed to do this because they are friends. As the rental relief wasn’t provided due to the financial impacts of COVID-19, Ned's auditor reports a section 62 and 109 contravention in this situation.

    End of example

    Loan repayment relief (including for limited recourse borrowing arrangements)

    Due to the financial impacts of COVID-19, some commercial lenders and related parties were offering SMSFs temporary loan repayment relief on limited recourse borrowing arrangements (LRBA). An SMSF may have also offered loan repayment relief in relation to a loan it had made to a related or unrelated party who had been financially impacted by COVID-19.

    Related party providing SMSF LRBA relief

    Temporary repayment relief may have been offered in relation to an existing LRBA between an SMSF and a lender, due to the financial effects of COVID-19.

    This repayment relief may have involved the lender accepting that loan repayments are deferred for a certain period. It might also have required interest to be capitalised on the loan during the deferral period and allowed for the loan to be extended to reflect the repayment relief. The variation in loan terms offered as part of the relief might have also meant that the SMSF was no longer able to meet the safe harbour loan terms that we accept are consistent with an arm's length dealing.

    Where a commercial lender such as one of the major banks offered loan repayment relief to an SMSF in respect of an LRBA on commercial terms, it is clear the arrangement was made and maintained on an arm’s length basis. However, the situation is less clear where a related party offered an SMSF this type of relief. It is possible a section 109 contravention may have arisen if the relief was not offered on arm’s length terms. The non-arm’s length income (NALI) rules might also apply.

    Shortly after COVID-19 was declared a global pandemic, the Australian Banking Association website provided examples of the type of loan repayment relief commercial banks were offering as a result of the financial impacts of COVID-19. This included the following:

    • interest and principal repayments on the loan suspended for up to 6 months (with an extension of up to an additional 4 months to 28 March 2021)
    • interest to continue to accrue on the loan during the deferral period
    • accrued interest to be capitalised on the loan and form part of the amount to be repaid over the term of the loan or in some cases an extended loan term
    • the borrower must have been financially impacted by COVID-19
    • the borrower must not terminate a lease or evict a tenant for rent arrears during the loan deferral period.

    We understand that the Australian Banking Association website no longer provides examples of commercial loan repayment relief. However, we trust that auditors can still use their professional judgment when determining whether relief is offered on commercial terms due to the financial effects of COVID-19.

    Provided the related party lender offered the fund temporary LRBA repayment relief as a result of the financial impacts of COVID-19 and on similar terms to that offered by commercial banks for real estate investment loans, and the trustee can provide evidence of the commercial terms that existed when the relief was provided, we will accept the parties are dealing at arm's length. There will be no contravention of section 109 and the NALI provisions do not apply.

    To be on commercial terms, the SMSF trustee must also document any changes in terms to the loan agreement and the reasons why those terms have changed. It is also expected that there is evidence that interest continues to accrue on the loan and that the SMSF trustee will repay any deferred principal and interest repayments in accordance with the varied terms.

    Division 7A, LRBA repayment relief and minimum yearly repayments

    If an SMSF has entered into a LRBA with a related private company where Division 7A of the Income Tax Assessment Act 1936 applies, and the company offered the fund LRBA repayment relief due to the financial impacts of COVID-19 on similar terms to that offered by a commercial lender, this will not give rise to any NALI consequences.

    Typically, LRBA repayment relief offered by commercial banks included the requirement to capitalise interest on the loan.

    Where temporary repayment relief has been given with respect to an LRBA between an SMSF and a lender and that loan is also a Division 7A loan, there will be no Division 7A consequences as a result of the interest being capitalised on the loan. However, interest that is capitalised does not count as a payment in determining if the minimum yearly repayment has been met for Division 7A purposes. Therefore, to avoid the unpaid amounts being taxed as unfranked dividends, an SMSF in this position can apply for Division 7A administrative relief if they are unable to make the minimum yearly repayment by the relevant due date under the Division 7A rules.

    Whilst there is nothing preventing the capitalisation of interest on Division 7A loans under the Division 7A administrative relief, we understand that there is a view that interest cannot be capitalised on such loans given their Division 7A nature.

    Therefore, for the 2019–20, 2020–21 and 2021–22 financial years, where an LRBA between an SMSF and a lender is subject to repayment relief but unpaid interest on the loan is not capitalised, we will not take compliance action to determine if the NALI provisions apply provided that the following conditions are all met.

    • The LRBA is subject to a Criteria of a complying loan agreement (for Division 7A purposes).
    • The SMSF has met their minimum yearly repayment or has applied for Division 7A administrative relief where they have been unable to meet the minimum yearly repayment.
    • Temporary repayment relief is due to the financial effects of COVID-19 on the SMSF.
    • Repayment relief is otherwise on similar terms to that offered by commercial banks.
    When to report a contravention

    The trustee(s) should document and provide evidence to you of the circumstances that have been considered to provide the loan relief. If you consider that they maintained an arms-length arrangement, there is no contravention of section 109 of the SISA and an ACR is not required to be lodged.

    If in your professional judgment, you do not believe that loan relief was provided on an arms-length basis, then you should follow the reporting criteria for lodging an ACR and report a section 109 contravention. You will also need to consider whether you qualify Part B of the audit report and will need to communicate the issue to the trustee as per section 129 of the SISA.

    We would also not look to apply the NALI rules where the SMSF could have taken advantage of LRBA relief but chose not to.

    Example: providing loan repayment relief on commercial terms

    Angela is director of the corporate trustee of her SMSF which borrowed money to purchase an investment property within her SMSF from her parents (a related party) under an LRBA. The tenants renting the property applied to Angela for a rent reduction due to the impacts of COVID-19. Angela agreed to a reduction in rent equivalent to the reduction in their turnover. As Angela’s SMSF did not receive the full amount of rent, her SMSF was financially impacted by COVID-19.

    Angela researched what banks were offering for investment loans for real estate in relation to COVID-19. She made a request to her lender, her parents, to temporarily defer the loan repayments for the next 6 months with the interest being capitalised on the loan and repaid over the term of the loan. Angela and her parents agreed to review the deferral arrangement in 6 months. Angela documented the changes to the loan terms, including the reasons for the changes, in an agreement signed by both Angela as trustee of her SMSF and her parents. She then kept it as evidence to support her application for loan relief.

    Angela transacted on an arm’s-length basis in relation to the varied loan terms, so there is no contravention of section 109 and the NALI provisions do not apply.

    End of example

    SMSF trustee providing loan repayment relief

    Where an SMSF loaned money on commercial terms to an unrelated party or a related party and the loan did not breach the in-house asset rules or section 65 of the SISA (as per Self-Managed Superannuation Funds Ruling SMSFR 2008/1), the borrower may have experienced difficulty repaying the loan due to the financial impacts of COVID-19. In this case, the trustee may have provided the borrower with some loan repayment relief. As long as the repayment relief is on commercial terms, has been necessary due to the financial impacts of COVID-19 and is appropriately documented, you will not need to report a contravention of section 109 or section 62.

    Where the loan is to a related party, the loan will constitute an in-house asset, and the fund’s 5% in-house asset threshold may be exceeded at year end as a result of providing the loan repayment relief. If this is the case, the trustee should still prepare a plan to dispose of the excess by the end of the following financial year. However, if the plan can’t be executed by the end of the following financial year due to the ongoing financial impacts of COVID-19, an in-house asset breach does not need to be reported in the ACR.

    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 a financial year, the in-house asset rules in the SISA require trustees 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 financial year.

    The downturn in the market in some areas due to COVID-19 may have resulted in the value of the fund's in-house assets being more than 5% of the fund's total assets.

    We understand it might be difficult for funds who exceeded the 5% in-house asset threshold as at 30 June of the 2019–20, 2020–21 or 2021–22 financial years to prepare and execute a plan to dispose of the excess by 30 June of the following year.

    While funds who exceeded the in-house asset threshold as at 30 June of the 2019–20, 2020–21 or 2021–22 financial years must still prepare a plan to dispose of the excess, we will not take compliance action against the fund where the trustee is unable to execute the plan and rectify the in-house asset breach by 30 June of the following financial year due to the financial impacts of COVID-19. For example, the rectification plan may not be able to be executed because the market has not recovered, or it may be unnecessary to implement the plan as the market had recovered.

    This means you will not need to report in-house asset contraventions for the 2019–20, 2020–21 and 2021–22 financial years, where the in-house asset position is impacted by the financial effects of COVID-19.

    Example: in-house asset relief

    During the 2019–20 financial year, Jill's SMSF makes a loan to a related party. The loan is on commercial terms, the value of the loan is under the 5% in-house asset threshold and the transaction does not contravene section 65 of the SISA. However, due to the financial impacts of COVID-19, the borrower became unable to repay the loan during the financial year. Jill's SMSF provides loan repayment relief on commercial terms.

    At 30 June 2020, as a result of the loan relief and other assets in Jill's fund including listed securities declining in value, the value of the loan exceeds the 5% in-house asset threshold at year end. The trustees provide evidence to their SMSF auditor of the reasons for providing the loan repayment relief (which is due to COVID-19). Interest continued to accrue and was capitalised on the loan. Appropriate documentation is kept in place to demonstrate the varied loan terms.

    The trustee prepares a plan to dispose of the excess in-house assets by the end of the following financial year. However, if they are unable to execute the plan by 30 June 2021 due to the ongoing impacts of COVID-19, they do not need to report an in-house asset breach in the ACR for the 2020–21 financial year.

    End of example

    Market valuations

    There is no change to the reporting requirements in relation to regulation 8.02B of the SISR.

    Where you are not provided with evidence from the trustees that the fund assets have been reported in the financial statements at market value and the contravention meets the reporting criteria, an ACR should be lodged as per normal requirements.

    We do however understand that trustees may have experienced difficulties due to the impacts of COVID-19 in obtaining objective evidence to support the valuation of assets as per the requirement in the SMSF valuation guidelines.

    If this is the case you should provide reasons in the ACR as to why the trustee was unable to obtain the appropriate evidence and if we are satisfied this was due to the impacts of COVID-19, the contravention will not result in any penalties.

    For more information see Verifying the market value of the fund assets.

    Early release of super on compassionate grounds due to COVID-19

    This relief only applies to the 2019–20 and 2020–21 financial years. 

    From 20 April 2020, eligible SMSF members were able to access up to $10,000 of their superannuation before 1 July 2020 and up to a further $10,000 from 1 July 2020 until 24 September 2020 to deal with the adverse economic effects from coronavirus. The eligibility criteria are set out in regulation 6.19B of the Superannuation Industry Supervision Regulations 1994 (SISR).

    Members can no longer apply for early access to their super on compassionate grounds due to COVID-19, with applications for the program closing on 31 December 2020. However, auditors still need to be satisfied that any super released from the fund on this basis during the 2019–20 and 2020–21 financial years complies with the SISR rules.

    In relation to forming an opinion on whether the fund has complied with the payment standards in regulation 6.17 of the SISR with respect to this compassionate condition of release, you need to ensure the member has not illegally early accessed their benefits.

    This means checking that the trustee has a determination from the Commissioner confirming the member is eligible for early release of super and having regard to any provisions in the trust deed constraining such payments. You will not be expected to check that the member has met the eligibility requirements listed under regulation 6.19B of the SISR. However, if you suspect or find out during the audit that the member did not meet the eligibility requirements, you can report this information at Section G ‘Other Regulatory Information’ of the ACR.

    The determination is the document received from us which specifies the super fund or funds and the amount of the preserved benefits or restricted non-preserved benefits that may be released from each fund. It is usually issued to the member (who also serves as the trustee for the purpose of paragraph 6.17D(2)(b) of the SISR in this case) electronically via myGov or alternatively it can be issued by hard copy in the mail.

    We expect you to report a regulation 6.17 contravention where the amount subject to the determination has been released prior to the trustee receiving a copy of the determination, if that contravention meets the reporting criteria.

    Sub regulation 6.17D(3) of the SISR states that the trustee must pay the member the amount approved for release ‘as soon as practicable’ after receiving the determination. That phrase is not defined in the regulations and the timing of payment may be dependent on several factors, such as where the fund did not have sufficient liquid assets and disposed of some of those assets to facilitate the payment. In such cases, you can use your professional judgment as to whether you think the payment has been made as soon as practicable based on the fund’s circumstances.

    Where a member has received the determination, they may have decided to no longer pursue release of the benefits or may have released a smaller amount than the amount stipulated in the determination. While this constitutes a breach of the payment standards, you are not required to report a contravention of regulation 6.17 in these circumstances.

    If a trustee released the amount stipulated in the determination in multiple lump sums, this would amount to a breach of regulation 6.17 as a result of the cashing restrictions in item 107A of the table in Schedule 1 of the SISR. These require that the amount specified in the determination is to be released in one single lump sum not exceeding the amount specified in the determination. This breach will need to be reported where the reporting criteria is met.

    Last modified: 25 Aug 2022QC 17603