The ATO has extended to 2021-22 the following administrative concessions for SMSFs impacted by COVID-19 that were offered for the 2019-20 and 2020-21 financial years:
- SMSF residency test– if a trustee or director is stranded overseas due to COVID-19, the ATO will not apply compliance resources to that aspect of the SMSF residency test;
- temporary rent relief– the ATO will not take compliance action where an SMSF landlord (or a related non-geared company or unit trust) provides rental relief to a tenant in the form of a reduction, waiver or deferral. This is provided that the relief is offered on commercial terms (having regard to State and Territory COVID-19 support measures) due to COVID-19, and the arrangement is properly documented. The ATO said it will also provide an in-house asset exemption for such rental deferrals by making a determination for 2021-22 (similar to the 2020 determination);
- loan repayment relief– the ATO will not take compliance action where loan repayment relief is provided by an SMSF to a related or unrelated party due to COVID-19. The relief must be offered on commercial terms with the changes to the loan agreement properly documented;
- limited recourse borrowing arrangements– if an SMSF has an LRBA in place with a related party, and the lender offers loan repayment relief to the fund, the ATO 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 (NALI). The relief must be offered on commercial terms (having regard to the terms of relief offered by commercial lenders for real estate investment loans); and
- in-house assets– if an SMSF exceeded the 5% in-house asset threshold at 30 June 2021 due to COVID-19, a rectification plan must be prepared and implemented by 30 June 2022. However, the ATO will not undertake compliance activity if the rectification plan cannot be executed by 30 June 2022 because the market has not recovered or it is unnecessary to implement the plan as the market had recovered.
SMSF audit relief extended to 2021-22
The ATO has also extended to 2021-22 its existing COVID-19 relief in the Addendum to the Auditor/actuary contravention report (ACR) which already applies to the 2019-20 and 2020-21 financial years. The ACR relief for 2021-22 applies for rental relief (including rental reductions, waivers and deferrals); loan repayment relief (including for LRBAs) and in-house assets. Approved SMSF auditors need to refer to the Addendum when determining whether a contravention arises because of the relief, when to report a contravention to the ATO via an ACR for the 2021-22 financial year, and what evidence to obtain from the trustees to support the relief. [LTN 185, 24/9/21]
[Tax Month – September 2021] [25.9.21]