COVID-19 has resulted in changes and uncertainty across the board particularly in the financial sector. For those with an SMSF this can be hard to navigate on top of your usual compliance requirements so let us take you through our top frequently asked questions…in two parts.
Q: How do I provide rent relief for my SMSF property and will I get in trouble?
A: The ATO has expressed that they will not take action if an SMSF gives a tenant (even a related party) a temporary rent reduction, waiver or deferral because of the financial effects of COVID-19 during the 2020 and 2021 financial year. As with any SMSF decision making it is important that the parties to the agreement document the changes by way of a minute or renewed lease agreement.
Q: I have a related party limited recourse borrowing arrangement. Is relief available?
A: The ATO understand the financial effects of COVID-19 are having on the repayment of related party loans within an SMSF. If the repayment terms are altered to provide relief the ATO will not take action of they reflect similar terms to what commercial banks are offering due to COVID-19 (eg deferrals of up to 6 months with unpaid interest being capitalised). Again, all parties to the arrangement must document these changes and the reasons why they were needed.
Q: My fund balance has substantially reduced and as a result my in-house asset has exceeded the 5% threshold. What can I do?
A: As with all in-house asset threshold breaches, a plan must be documented to reduce the market ratio of the in-house asset to below 5% of the fund value. However the ATO has taken the view that they will not carry out any compliance activity if the rectification plan was unable to be executed because the market has not recovered due to COVID-19.
Q: Should I be reviewing my investment strategy?
A: Your investment strategies must be reviewed regularly and at the very least annually. However, significant events should prompt additional reviews to ensure variations are made if and where necessary. Ensure you document any changes to your strategy that you make. Remember that short term variations shouldn’t really impact your overall investment strategy however they should still be considered.
Ensure you check out our next blog which will provide an EOFY action plan checklist.
Contact us here if you require further information or have any other questions not covered regarding your SMSF.
This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.