COVID relief top of mind for SMSF advisers

The team fielded over 2,000 queries from advisers every quarter on technical topics relating to superannuation and investments.

Although personal freedoms had recently again been curbed in many countries, and life has been far from normal, equity markets have continued to perform strongly during the pandemic, according to the BT technical team. Investors who held their nerve during the pandemic’s troughs and peaks have been rewarded with very strong returns in the past 12 months.

In addition, Australians’ savings have increased during the pandemic. Those who may have drawn on their superannuation as part of the federal government’s early release of super program in the calendar year 2020 may find that they are now in a position to be able to make additional contributions into their super.   

“Some advisers are pleasantly surprised to learn that their clients can re-contribute the amounts they had withdrawn under the COVID-19 early release of super program and that those re-contributions will not be counted towards their non-concessional contributions cap,” Tim Howard, technical consultant in BT’s technical services team said. 

“What’s more, clients have until 30 June 2030 to make the re-contributions – and so have a long period in which to get their retirement savings back to where they were.” 

The new regulations regarding the re-contribution of COVID-19 early release amounts came into effect in July 2021, as part of an amendment stapled to the much-awaited “bring forward” legislation (Treasury Laws Amendment (More Flexible Superannuation) Act 2021). 

Acknowledging the continuing impact of COVID, particularly on travel and the property market, the federal government has also extended a range of relief measures for SMSFs to the end of the 2022 financial year.

SMSF trustees and related parties who have been unable to return to Australia due to travel restrictions will not see their fund’s residency status impacted. 

“If rental relief provided by an SMSF to a tenant happens to give rise to a contravention of the super laws, the ATO will not take any compliance action against the fund, as long as the relief is offered on commercial terms due to the financial impacts of COVID,” Mr Howard said.

“Similarly, if loan repayment relief is provided by an SMSF to a related or unrelated party, and the relief is offered on commercial terms and is due to the financial impacts of COVID, the ATO will not take any compliance action against the fund.              

“Further, the ATO is providing leniency to SMSFs exceeding the 5 per cent house asset threshold at 30 June 2021. The fund must still prepare a written plan to reduce the market value of the fund’s in house assets to below 5 per cent by 30 June 2022; however, [it] will not face any compliance action if they have not executed the plan by 30 June 2022.”

Increasing problems seen around property and super caps for SMSFs

Most advisers are aware that SMSF clients cannot personally make use of property owned by their fund; however, this topic continues to be brought up by clients, according to Mr Howard.

“Advisers are asking for certainty around what the alternate solution may be, although they may already know the answer,” Mr Howard noted. 

“They are double-checking with us, as clients who are about to retire are regularly asking advisers whether they can move into the property owned by their SMSF.”  

Those clients mistakenly believe that, because they have met a condition of release, they can access the money in their SMSF or live in a property owned by the fund.  

“The latter is not the case as the property would almost always cause an in house asset issue,” Mr Howard explained. 

“To be able to live in it, title to the property must be transferred out of the fund. Stamp duty would need to be paid, and capital gains tax may be payable. Overall, the tax consequences, in many cases, make this solution cost-prohibitive.”               

As of 1 July 2021, every individual now has their own personal transfer balance cap of between $1.6 and $1.7 million, depending on their circumstances.

Mr Howard noted many advisers are asking how they can obtain this information and how to calculate a client’s transfer balance cap. 

In particular, some advisers are concerned that a client who is rolling over between funds might accidentally push their transfer balance account over the threshold. Mr Howard stressed that ultimately rollovers should not inadvertently impact clients’ transfer balance caps.

From 1 July 2021, the excess concessional contribution charge (ECCC) also no longer applies. This means that individuals who make contributions on or after 1 July, which exceed their concessional contributions cap, will not have to pay the ECCC. 

“Making an excess concessional contribution is no longer as onerous an issue or cost to clients,” Mr Howard explained.  

Those who make an excess contribution will still be issued with a determination and taxed at their marginal tax rate on any excess (with a 15 per cent tax offset to account for the contributions tax already paid by their super fund).