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COVID-19 and Your Super

The impact of COVID-19 has been vast and complex – and super, particularly Self-Managed Superannuation, is no exception. As the government continues to bring in and tweak economic stimulus measures to help people and businesses keep their heads above water, some changes have been made to SMSFs and what funds are allowed to do during the pandemic. Where these measures aim to improve the longer-term economic outlook for Australians, there are some short-term obligations that must be considered. If you’re thinking about taking advantage of some of the SMSF-related stimulus items, read on…

$10,000 Early Superannuation Release

Obtaining an early release of superannuation isn’t necessarily a new concept in Australia – for some time now people have been able to access all or part of their super in exceptional circumstances such as severe financial hardship or terminal illness. More recently, the Government announced that those who have been significantly impacted by the COVID-19 pandemic may apply for a once-off, tax-free payment of up to $10,000 from their super fund. This is available for the 2019/20 and 2020/21 financial years, however applications for the 2019/20 financial year closed on 30 June 2020. Applications for the 2020/21 financial year have recently been extended to 31 December 2020.

For SMSF trustees, the need to make sure that their SMSF trust deed allows for early release, and that the member looking to withdraw the money is eligible to do so is important. Remember that authority from the Australian Taxation Office (ATO) must be received before any funds are released – this is especially important for 2019/20 audits as the ATO will be focusing on this very closely.

Also, the ATO when granting a release won’t have the most up to date member balances so it is important to talk with the accountants to ensure member balances aren’t inadvertently overdrawn before you make any withdrawals.

SMSF Asset Values

Coronavirus’ has undoubtedly had an impact on the property market in Perth for both residential and commercial properties.  This impact has been felt across the SMSF industry and has had a flow on effect for valuations, more importantly the need for up to date valuations to maintain compliance.

SMSFs have always had to ensure that fund assets are held at market value at the end of each financial year, however with the investment and property markets taking a hit during COVID-19, many auditors have requested additional trustee input such as up to date valuations for rental properties and additional notes to the financial statements regarding share prices.  Valuations may not necessarily need to be performed by a licenced valuer for the purpose of year end financial statements, but any valuation must be supported by relevant data, such as market comparison for properties of similar size, location and function.

If you own a rental property and it hasn’t been appraised in a while, consider having a chat with your local real estate agent.

Tenant Rent Relief

Recently the Government announced temporary rent reductions, deferrals or waivers for commercial property tenants as a result of COVID-19.  This aims to help businesses stay afloat by prompting landlords to reduce their rent by an amount proportionate to the tenant’s reduction in turnover.

SMSF legislation is very strict regarding the terms of a lease agreement and setting of rent below market value when commercial property is involved, even more so when the property is being rented to a related party (a related party being: a fund member; an associate, relative or business partner of a fund member; or a spouse or child of a business partner of a fund member).

That being said, the ATO has made it clear that for the 2019/20 and 2020/21 financial years it will not take action on rental relief provided by SMSF landlords to their tenants; provided that relief is provided on arms-length terms. Basically, they won’t be looking into it too closely as long as rent reductions, deferrals or waivers are in accordance with the National Cabinet Mandatory Code of Conduct for commercial leasing principles; are fully documented and agreed upon by both parties (including specific reasons for the rent relief); and are time-bound.

Looking After Your Super: COVID-19 and Beyond

Navigating the tricky legislative landscape around Self-Managed Superannuation can be difficult enough at the best of times, let alone in the middle of a global pandemic and all the economic struggles that brings with it. The SMSF team at McKinley Plowman helps clients every day to manage asset allocations, minimise tax obligations (including CGT), and remain compliant with the shifting legislation around superannuation. We also offer superannuation strategy reviews to help you make the right decision for you and your future. If you’d like to know more about how we can help you make the most out of your hard-earned super, get in touch with the team today on 08 9301 2200 or visit https://www.mckinleyplowman.com.au/services/smsf.

written by:

McKinley Plowman