Ongoing COVID-19 compliance issues yet to play out for SMSFs in 2021

With the temporary early release of superannuation benefits applications having finished at the end of last year, the ATO has continued to process the outstanding applications with no expiration date on determinations issued yet by the Tax Office.

Mr Ellem said it will be important for SMSFs to make sure they don’t release the benefits before the date of the ATO determination.

“Also, importantly for any payment that has been made under this temporary access to preserve benefits, retain that ATO determination for your audit which might even be for both the previous or current financial year 2020,” he said.

With rent relief another notable compliance issue, SMSF professionals must make sure to keep a close track particularly regarding renting property to a related tenant and the breach of 109 SIS rules on commercial terms.

“Make sure that the relief that we have given and provided must be fair, reasonable and proportionate and must have evidence of the COVID-19 financial effect on the tenant,” he said.

“We need to also ensure that we have documented those changes, and from an ongoing perspective, we have to make sure trustees have documentation to show there is this an ongoing assessment.

“If the initial relief period might have been for three months, show what has been reassessed, how is the tenant doing, what is the effect on the turnover and are they able to start paying rent at which rate, and always document those changes and continue to apply that National Code of Conduct for the duration of JobKeeper which applies up till 28 March 2021.”

For those funds that have limited recourse borrowing arrangement and have borrowed from a related party, there will be relief measures in relation to non-arm’s length income (NALI) where there has been a deferral granted and that deferral of loan repayments is in accordance with what’s on offer from commercial banks, according to Mr Ellem.

“Ongoing from that six-month deferral period, phase one has been needed, and we are now moving to phase two. Phase two is where there is a review of the capacity for the borrower, in this case the SMSF, to start repaying the loan.

“Under the guidelines, remember they were not automatic, it only occurred once there was a review of the capacity for the borrower to repay, so if the decision is made to give a further four-month deferral, we want to see the documentation of that.”

Mr Ellem said from an ongoing prospective, for the LRBA related-party loan relief, remember to also document and show that the deferral is due to the financial effects of COVID-19 and reflects similar terms offered by commercial banks.

“Show any changes in terms of the loan agreement and reasons why terms have changed, also that loan interest has been capitalised and evidence of that,” he said.

Also, if the borrower from a related party is relying on the related party safe harbour rule, the compliance relief would require catch-up payments to be made as soon as possible, but Mr Ellem said there is still no determination of how soon that would be.

“Keep in mind with related party loans relying on safe harbour rules, the maximum term where the asset subject to the loaner’s property is 15 years and it can’t be extended,” he said.

“So keep reviewing those loans to ensure that there is a plan in place to deal with when the deferral period ends and we have to start repaying those loans.”

Mr Ellem said there will also be ongoing issues with in-house asset rules which will apply both to the 2019 and the 2020 financial year, in regard to exceeding the 5 per cent market value ratio test and is due to other assets of the fund being affected by COVID.

“We are still required to put a plan in place, but we don’t have to execute that plan if it means by the end of the following 30 June 2020 when that excess in-house asset amount would have normally been disposed of,” he explained.

“We don’t have to execute that plan where those assets and other investments have recovered sufficiently such that the in-house asset value is now not exceeding 5 per cent or we’ve been unable to execute because the market has not recovered, so keep an eye out and document accordingly throughout the year.”