Four support measures for SMSFs during COVID-19

The ATO recognises that, due to market forces, many SMSF trustees won’t be in a position to fully meet some of their usual regulatory requirements. To that end, there are a number of support measures now available, and it’s important they are managed and implemented correctly.

The COVID-19 human health crisis is an evolving situation, so it’s important to keep up to date with announcements from the regulators as to how rules and relief may affect SMSFs. For now, below are some important support measures for trustees to note.

Relief for commercial property owners

One of the unique benefits of having an SMSF is that members can lease a business premises which is held in their fund, including to members of the SMSF. The rules for this arrangement say that the lease arrangement must be on commercial terms, meaning the rent payments should be set at a commercial rate.

Like other property owners during the COVID-19 crisis, many SMSFs will be in a position at the moment where they need to reduce rent. The ATO has said it won’t be taking compliance action this income year or next income year in situations where rent has been reduced or waived.

This is good news for SMSFs, but it’s important to note that proper documentation for reasoning of the rental waive or reduction is still necessary.

In-house assets

In normal circumstances, the in-house asset test says in-house assets can’t amount to more than 5% of an SMSF’s total assets. This test is applied, for example, in situations where an SMSF may be investing in a related entity, or an asset of the fund is being leased to a related party.

However, the ATO recognises that, given market conditions, the value of a fund’s other assets may have dropped. An asset previously falling under the 5% threshold may now exceed 5%. In these situations, the normal rule is that trustees need to put a plan in place as to how to get below 5% by June 30 next year. However, they won’t be held to executing it they are unable to do so because the market has not recovered or it was unnecessary to do so because the market had recovered.

Lodgement

As you would know, most SMSFs are required to lodge an annual return with the ATO on or before May 15. However, due to the significant impact of COVID-19, for the lodgement of the fund’s 2018-19 annual return, the ATO has announced a blanket lodgement extension for all SMSFs until 30 June 2020. This means SMSFs are not required to lodge their 2018-19 SMSF annual return until 30 June 2020.

Changes to pension drawdown rates

Minimum drawdown rates have also been reduced by half for account-based pensions for this financial year and next. A minimum drawdown amount is required each year with account-based pensions and market-linked pensions, but the federal government recognises that the rates which would normally apply may adversely impact portfolios. Reducing the minimum drawdown rate is designed to let pension funds stay where they are, and allow them more time to recovery.

We have had quite a few questions about how this rule is applied, so there are some important points to consider below.

1. If a person is receiving regular monthly pension payments, chances are they’ve already received more than what they need to under the new reduced drawdown requirements. In situations like that, pension payments can be switched off, and no further payments need to be taken for the rest of the income year. Alternatively, pension payments can be reduced. 
2. People may continue to receive the same pension, it’s just an option to switch it off or adjust within the new allowances.
3. If a person has already taken more than what they’ve needed in light of the new drawdown allowances, the excess amount cannot simply be put back into a pension account. If a person is over 65, they would need to meet the work test in order to do that, because it would be classified as a contribution to superannuation and it would need to be put into an accumulation account in the fund and not back in their existing pension.

Please note: The above video was filmed prior to the ATO’s lodgement announcement on April 22.