Trustees of SMSFs should be aware that COVID relief measures that were previously in place have now ended. The relief measures applied for the 2019-20, 2020-21 and 2021-22 years but expired on 30 June 2022. As such, the ATO now expects SMSF trustees to comply with all their obligations under the tax and super laws previously covered by the relief measures.
Prior to 30 June 2022, individuals who became stranded overseas due to COVID-19 which caused them to be out of Australia for more than 2 years could rely on the SMSF residency relief. This consisted of the ATO not taking any compliance action to determine whether a particular SMSF met the residency test provided there were no other changes in the SMSF’s circumstances or in the circumstances of a member/trustee.
Since this relief no longer applies, members and trustees of SMSFs who spend an extended period of time overseas may now be affected by the “active member” test and “central management and control” test, respectively. This could cause an SMSF to fail to meet some of the residency conditions to be an Australian super fund for tax purposes, which in turn may see the SMSF lose its complying super fund status and associated tax concessions.
One of the other prominent relief measures provided during the COVID pandemic which has now ended relates to rental relief provided to related parties. The ATO had confirmed that no compliance action would be taken against an SMSF and no auditor contraventions needed to be reported for rental reductions and waivers to related parties provided they were on commercial terms, relief was due to COVID, and that the arrangement was property documented.
Specific Determinations were also registered for the 2019-20, 2020-21, and 2021-22 income years to ensure that rental deferral offered by SMSFs or a related party to a tenant would not cause a loan or investment to be an in-house asset of the fund provided certain conditions were met.
Again, now that the rental relief has ended, if an SMSF provides rental reductions or waivers to related parties, it may give rise to a reportable contravention of the super laws. For example, the arrangement may not comply with the sole purpose test and/or arm’s length requirements and may also contravene the prohibition on providing financial assistance to a member or a member’s relative. In cases where the SMSF or a related party provides a rental deferral, there may now be a real risk that the in-house asset rules may be breached.
Similarly, the relief measures relating to loan repayment relief provided by an SMSF and SMSF LRBA relief will also no longer apply. Therefore, from 1 July 2022, approved SMSF auditors must report contraventions via the auditor/actuary contravention report (ACR), if such a contravention occurs. Before that happens, trustees of SMSFs are encouraged to use the ATO’s voluntary disclosure service to report any identified contraventions and plan to rectify the contravention as soon as possible. The ATO notes that any voluntary disclosures will be taken into account when determining what action it will take in relation to the contravention.