COVID-19 Relief for Self-Managed Superannuation Funds

With so much going on at the moment in relation to the COVID-19 outbreak and the stimulus support being offered by Government, retirees and SMSFs have been somewhat pushed into the background as news reports focus in on the support being offered to business.

In this update, we provide the latest summary straight from the Australian Taxation Office in the form of a Q & A on some of the most common questions relating to the SMSF sector.

This Q & A update provides the ATO's answers to questions on:

• Temporarily reducing superannuation minimum payment amounts • Temporarily reducing rent • In-house asset restrictions • Super balance losses • Investment strategies

Temporarily reducing superannuation minimum payment amounts

Question: I am retired and receive an account-based pension from my SMSF. My account-based pension balance has been badly affected by the losses in the financial market because of the COVID-19 crisis. I would like to reduce my pension payments. Does the SMSF still need to pay me the minimum amount that was calculated based on my account balance at 1 July 2019?

Answer: Certain superannuation pensions and annuities are subject to rules about minimum and maximum amounts paid in a financial year. To assist retirees, the government has reduced the minimum annual payment required for account-based pensions and annuities, allocated pensions and annuities and market-linked pensions and annuities by 50% in the 2019–20 and the 2020–21 financial years.

See also: • Minimum annual payments for super income streams

Temporarily reducing rent

Question: My SMSF owns real property and wants to give my tenant – who is a related party – a reduction in rent because of the financial impacts of the COVID-19. Charging a related party a price that is less than market value is usually a contravention. Given the impacts of the COVID-19, will the ATO take action if I do this?

Answer: Some landlords are giving their tenants a reduction in or waiver of rent because of the financial impacts of the COVID-19 and we understand that you may wish to do so as well. Our compliance approach for the 2019–20 and 2020–21 financial years is that we will not take action where an SMSF gives a tenant – who is also a related party – a temporary rent reduction during this period.

See also: • Carrying on a business in a SMSF

In-house asset restrictions

Question: The downturn in the share market may result in the fund’s in-house assets being more than 5% of the fund’s total assets. The in-house asset rules would be breached. What do I need to do?

Answer: If, at the end of a financial year, the level of in-house assets of an SMSF exceeds 5% of a fund’s total assets, the trustees must prepare a written plan to reduce the market ratio of in-house assets to 5% or below. This plan must be prepared before the end of the next following year of income.

If an SMSF exceeds the 5% in-house asset threshold as at 30 June 2020, a plan must be prepared and implemented on or before 30 June 2021. However, we will not undertake compliance activity if the rectification plan was unable to be executed because the market has not recovered or it was unnecessary to implement the plan as the market had recovered.

See also: • In-house assets

Super balance losses

Question: My super balance has been affected by downturns in the global economy. Can I claim this loss?

Answer: We understand that downturns in the global economy may impact on your super balance. Realised losses arising in a super fund may be available to the fund to deduct against realised gains in future years, however these losses are not available to you to deduct in your own personal tax return. As you don’t return any profit made in your super fund as assessable income in your personal tax return, similarly you can’t claim a deduction for the loss in your super balance.

However if you made personal super contributions during the financial year to a complying super fund, you may be able to claim a deduction for those contributions.

See also: • Personal super contributions

Investment strategies

Question: The downturn in the market has impacted on my SMSF’s investment strategy. What do I need to do?

Answer: Trustees must prepare and implement an investment strategy for their SMSF, which they must then give effect to and review regularly. The strategy should be reviewed at least annually, and you should document that you’ve undertaken this review and any decisions arising from the review. Certain significant events, such as a market correction, should also prompt a review of your strategy and may require updating your investment strategy.

Where the assets of an SMSF or the level of investment in those assets fall outside of the scope of your investment strategy, you should take action to address that situation, which could involve adjustments to investments or updating your investment strategy. We don't consider that short term variations to your articulated investment approach, including to specified asset allocations whilst you adjust your investments, constitute a variation from your investment strategy.

All investment decisions must be made in accordance with the investment strategy of the fund. If in doubt, trustees should seek investment advice.

See also: • Your self-managed super fund investment strategy

If you would like to discuss any of the above topic in more detail, please contact our office for assistance.