With the recent surge of COVID-19 cases, Australia’s banks had recently announced varying small business support options to customers affected by hardened state lockdown restrictions spanning loan repayment deferrals of up to three months.
With the lockdown period still uncertain in NSW, Smarter SMSF CEO Aaron Dunn said the ABA has announced a number of measures to continue to support businesses and individuals and will also apply to affected SMSFs and their related-party loans.
“As part of this announcement, loan support measures including deferrals on a month-by-month basis are available,” Mr Dunn said in a recent blog.
“While this would naturally apply to LRBA loans with banks, it would seem consistent for such deferrals to also be allowed for related-party loans without triggering any NALI issues.
“The ATO has previously stated this to be the case with their COVID-19 compliance relief, so it would seem likely to apply again.”
Mr Dunn noted that it would not apply universally to SMSFs, but is more targeted to those areas continuing to be impacted by COVID-19-related lockdowns.
“Most importantly, and for audit purposes, putting in place evidence to support the relief and alignment to the ABA’s guidance will be crucial,” Mr Dunn said.
“It’s a difficult time for many businesses and individuals struggling through another period of economic challenges due to COVID-19. This relief would be a welcome relief, although, unfortunately for some, it won’t be enough.”
Throughout the COVID-19 emergency period in 2020, the ABA provided loan repayment relief, whereby borrowers were provided with a repayment holiday and interest was capitalised to the loan.
From an LRBA perspective, this created some potential issues for related-party loans with the non-arm’s length income (NALI) rules.
Where an SMSF loan deviated from the safe harbour set out within PCG 2016/5, the commissioner’s view was that it may apply the NALI rules to both the ordinary and statutory income of the investment (e.g. property).
As Division 7A closely interacts with LRBAs, advisers will always need to be aware of the practical elements that can affect the SMSF’s position around the administrative relief.
