Author: Jason Roccasalvo, Partner, TAG Financial Services
These are difficult times. No one is immune.
For SMSF (Self Managed Superannuation Funds) Trustees, in addition to the ATO’s recent announcements some additional complexities may occur where:
Property rented to a related party
Your SMSF may own commercial property, leased to your business. The ATO has provided some clarity that temporary rent reduction is permitted due to the impact of COVID-19, and they will not be taking compliance action around this.
However, SMSF Trustees should not be cavalier in their approach. Make sure you properly document the decisions and act as you would act if you were dealing with someone you don’t know.
Every SMSF will still need to be audited for the current year and a documented approach is crucial to display “commerciality” of the arrangement to the Auditor.
SMSFs with Borrowings
For SMSF’s with borrowings, the impact of a rental reduction may be even more severe.
Trustees should speak with their bank about assistance with repayment terms as should all clients concerned about their cash flow in these times.
If the SMSF has borrowed money from a related party, then ensuring the loan continues to comply with the ATO’s guidance is vital. In some instances, maintaining rent at normal levels may help meet the repayment back out to you as the “bank”.
Lower contributions due to reduction (or even loss of) employment may also impact (negatively) the Fund’s cash flow needs.
Commercial loan arrangements should be in place and continue, unless there are means to justify this reduction which are both commercial given the Coronavirus’ impact, and documented.
SMSFs should always act in a commercial manner when it relates to dealings with fund members or their business. Ensure documentation and reasoning can be shown to the auditor to assist the fund in staying compliant. Go the extra yard.
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Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686).