Current as at 21 May 2020
You may be aware that the Government recently announced measures which allow individuals affected by the economic impacts of COVID-19 to access a limited amount of their superannuation early. Similarly, rental relief for your SMSF property tenant may also be available.
Accessing your superannuation early
Making the decision to access your superannuation early is a significant one and if possible, should be encompassed by financial advice.
The Australian Taxation Office have now released guidance on the process for accessing superannuation early from SMSFs to assist in cushioning the adverse economic effects of Coronavirus.
How much can you take out?
You will be able to apply online through the myGov website (https://my.gov.au/) to access up to $10,000 of your superannuation before 1 July 2020.
You can access a further $10,000 of your super from 1 July 2020 until 24 September 2020.
You will only be able to make one request for each financial year. For example, should you nominate for a lesser withdrawal amount in 2019/20, you will not be able to apply again before 1 July 2020 for the remainder nor will you be able to apply for more than $10,000 from 1 July 2020.
If you access your superannuation you will not be required to pay tax on amounts released and any amounts withdrawn will not affect your Centrelink or Veterans’ Affairs payments. These amounts will also not be included in your assessable income for the financial year the withdrawal is made.
Satisfying early release requirements
The intention of the legislation is that you are adversely affected by the economic impacts of COVID-19 and require early access to your superannuation which is ordinarily preserved until your retirement.
To apply for early release of your superannuation, you must satisfy one or more of the following requirements:
- You are unemployed.
- You are eligible to receive a job seeker payment, youth allowance for jobseekers, parenting payment (which includes the single and partnered payments), special benefit or farm household allowance.
- On or after 1 January 2020, any of the following happened:
- You were made redundant.
- Your working hours were reduced by 20% or more.
- You were a sole trader and your business was suspended or your turnover decreased by 20% or more.
These are the only requirements that must be considered.
How to apply to access your superannuation
You can register your interest to access through the myGov website. If you satisfy one or more of the requirements entitling you to access your superannuation early, you would have been able to do so from mid-April.
After applying through myGov, the ATO will issue you with a determination advising of your eligibility to release an amount. Only once your SMSF receives the determination from you, will the trustee be authorised to make the payment. If you apply to access superannuation benefits from a non SMSF, the determination will be issued by the ATO direct to the APRA regulated funds and the trustee will proceed to release your benefits to a nominated bank account.
Providing rental relief for the tenant in your SMSF property
If your SMSF has a property and a tenant in financial distress, you may be able to provide your tenant with rental relief under an agreed commercial arrangement. This may even be the case when the tenant is a related party or yourself.
Ordinarily, charging a tenant a price that is less than market value in an SMSF is usually a breach of superannuation laws. However, the ATO have provided guidance which allows SMSF landlords to provide for a reduction in or waiver of rent because of the financial impacts of the COVID-19.
For the 2019–20 and 2020–21 financial years, the ATO will not take action where an SMSF gives a tenant – who may also be a related party – a temporary rent reduction during this period.
What do you need to do?
There are some important things you should ensure are in place when you are providing a rent reduction to a tenant, especially when this is a related party.
- Ensure the relief only applies to rent.
- Any relief offered to a tenant can only relate to the rent component of the lease agreement. The ATO concession does not extend to other lease incentives.
- Ensure that the reduction in rent is only temporary.
- This means it should have an agreed period of time or agreed date where the rent is reviewed in light of the economic circumstances.
- The financial difficulty faced by the tenant is linked to the financial impacts of COVID-19.
- Any negotiated rent relief will need to be measured against the COVID-19 financial impact suffered by your tenant.
- Clear arrangements which detail the amount of discount, waiver or deferral of the rent.
- In evidencing that the rent relief is reasonable, it would be best practice if it is consistent with an approach taken by an arm’s length landlord.
- Ensure you have proper documentation which allows your independent auditor to be satisfied that the temporary rent relief satisfies all of the above.
- This may take the form of a signed minute, renewed lease agreement or anything deemed appropriate to amend the terms of the lease temporarily.
- Even if you are both the tenant and landlord, the above should all be documented.
These are extraordinary times and the ATO is providing this guidance to allow SMSF trustees to be flexible and agile.
If trustees act in good faith in implementing a reasonable and measured reduction in rent because of the impacts of COVID-19 they should not fall foul of the law.
This newsletter has been produced by Stanley & Williamson as a service to its clients and associates. The information contained in the newsletter is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas contained in this newsletter, it is imperative you seek specific advice relating to your particular circumstances.
Liability limited by a scheme approved under Professional Standards legislation.