CORONAVIRUS AND YOUR SUPERANNUATION

    8th April 2020

    As a part of the Government’s economic stimulus package to cushion the effects of coronavirus, numerous superannuation and retirement income focused measures have been introduced in the last few weeks. These include:

    • Early access to up to $20,000 from your superannuation.
    • 50% reduction on minimum pension drawdown requirement.
    • Reduction of upper and lower social security deeming rates.
    • SMSF landlords temporarily reducing rent
    • ATO’s relaxation on the in-house asset test
    • SMSF loan relief
    • SMSF residency

    Additionally, guidance has been provided around some specific scenarios that SMSFs may encounter in the short to medium term.

     

    Early access to superannuation

    It is now possible to obtain early access to superannuation balances of up to $10,000 before 1 July 2020 and a further $10,000 for approximately three months after 1 July 2020.

    The early release is available to individuals who meet at least one of the following requirements:

    • you are unemployed; or
    • you are eligible to receive a social security payment to supplement income*; or
    • on or after 1 January 2020:
      • you were made redundant; or
      • your working hours were reduced by 20 per cent or more; or
      • if you are a sole trader — your business was suspended or there was a reduction in your turnover of 20 per cent or more.

    The Australian Government has directed that those accessing early release from their superannuation will not be required to pay tax on amounts released and withdrawn amounts will not affect Centrelink or Veterans’ affair payments

    If eligible, you can apply for early release of your superannuation directly from Australian Tax Office through myGov .

    Reduction of minimum pension drawdown

    The unprecedented fall in investment markets has directly impacted the balance of superannuation funds, making cash less accessible in the funds of many retirees. To cushion the hardship on pensioners, the Government has reduced the drawdown rates for pensions by 50% for the 2019/2020 and 2020/2012 years. Details of the reduced rates are tabled below.

     

    Age

    Default minimum drawdown rates (%)

    Reduced rates by 50 per cent for the 2019-20 and

    2020-21 income years (%)

    Under 65

    4

    2

    65-74

    5

    2.5

    75-79

    6

    3

    80-84

    7

    3.5

    85-89

    9

    4.5

    90-94

    11

    5.5

    95+

    14

    7

    This measure aims to prevent retirees from having to sell investment assets to meet their minimum pension drawdown based on their 30 June 2019 pension balance.

    If you have already withdrawn your minimum pension based on the default rates above, there is currently no mechanism to return the surplus 50% back to your pension. However, based on your current contribution caps, you may be eligible to recontribute the amounts. For further guidance on this, please contact your accountant or adviser.

    *Social security payments include: JobSeeker payment, Youth Allowance for job seekers, Parenting Payment (single or partnered), Special Benefit or Farm Household Allowance.

    Reduction in Social Security Deeming Rates

    Social Security deeming rates (both upper and lower) will be temporarily reduced from 1 May 2020. Deeming rates are used as a part of the Age Pension income test to assess potential return your investments may have. To be eligible for the Age Pension you must pass the income test. New deeming rates are now:

    Situation

    Deeming Rate

     

     

    Single

    0.25% on the first $51,800 of your investment assets, plus

     

    2.25% on your investment assets over $51,800

     

     

    Couple

    0.25% on the first $86,200 of your combined investment assets, plus

     

    2.25% on your investment assets over $86,200

    To find more information about eligibility and what applies to you, visit here.

    SMSF landlords temporarily reducing rent

    Some landlords are giving their tenants a reduction or waiver of rent due to the financial impacts of the COVID-19 (indeed, some commercial property landlords may be required to negotiate rent reductions and deferrals with their tenants that turnover of less than $50 million and are eligible to claim JobKeeper payments). Where the tenant has no connection (direct or indirect) to the SMSF landlord, there are unlikely to be any SIS Act complexities. However, offering rent relief (or other incentives) to a related party would usually be fraught with SIS Act compliance risks.

    The ATO have received numerous enquiries in relation to this issue and have confirmed that they will not be taking any action where an SMSF gives a tenant, who is a related party, a temporary rent reduction or deferral during the 2019-20 and 2020-21 financial years.

    It is still necessary for the trustees to document and demonstrate that the trustee’s decision to waive, reduce or defer the rent is consistent with a commercial arm’s length arrangement.

    This documentation could contain:

    • Circumstances of the fund
    • Circumstances of the tenant (cashflow, operations and restrictions caused by COVID-19)
    • Compliance with the mandatory code of conduct appliable to owners of commercial properties
    • Terms of the existing lease
    • Type and location of the property
    • Ability for the property to be leased to an outside tenant
    • Comparative rent relief offered to similar tenants of the same property type in the same location
    • Trustee minutes
    • Lease variation documentation, this can be acquired from a lawyer

     

    The cost of providing rent relief without having the sufficient documentation to support the arrangement can be substantial. Therefore, we urge our SMSF clients to contact us if they would like more information or obtain proper advice prior to taking action. Further details can be found here.

    ATO’s relaxation on the in-house asset test

    The drastic downturn in the market has also resulted in the ATO relaxing the in-house asset 5% threshold as they understand that many funds have had their market ratios skewed to favour unlisted investments. In a normal climate, in-house assets cannot exceed 5% of the fund’s market ratio at year end and if they exceed that threshold the fund would need to sell the in-house assets to the extent that they were above the 5% limit.

    These assets include:

    • A loan to, or an investment in, a related party of the fund
    • An investment in a related trust of the fund
    • An asset of the fund that is leased to a related party

    Similar to their approach during the GFC, the ATO has stated that if at 30 June 2020 the fund does not comply with the 5% in-house asset obligation there will be no compliance action taken against the fund. However, the trustees must document and implement a plan to reduce the in-house asset ratio to 5% or below by 30 June 2021. If the execution of this plan was not possible due to the market not recovering or if there was no need to implement the strategy, the ATO will not follow up on the compliance of this at the end of the 2021 financial year.  Further details can be found here.

    SMSF loan relief

    The ATO have confirmed that their compliance approach for the 19-20 and 20-21 financial years will not take action where an SMSF offers a related party, who has a compliant loan agreement in place, any concessions that result from the impact of COVID-19.

    SMSF residency

    The COVID-19 health crisis has resulted in many countries imposing travel bans. If the individual trustees of an SMSF or directors of its corporate trustee are stranded overseas due to COVID-19, in the absence of any other changes in the SMSF or the trustees’ circumstances affecting the other conditions, the ATO will not apply compliance resources to determine whether the SMSF meets the relevant residency conditions.

     

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