The ATO has issued some public comments on its website to provide guidance (and some welcome ‘slack’) in relation to SMSF compliance issues that may be impacted by the current zombie apocalypse. The two key measures are outlined below.

Temporarily reducing rent payable by related parties

Many SMSFs own property that is rented by a related party and many of those related party tenants are struggling with cash flows, including paying the rent. Normally, if a SMSF charges a related party less than market-value rent (for example because of the financial impacts of COVID-19) it is a contravention of the super fund rules. The ATO’s comment is that it will not take action in relation to the 2019-20 and 2020-21 financial years if a SMSF gives a related party tenant a temporary rent reduction during this period.

In-house asset restrictions

Normally, if a super fund’s in-house assets (loans to or investments in related parties) are more than 5% of the fund’s total assets (for example due to the recent downturn in the share market) this would be a breach of the fund’s rules. The ATO has advised that if this occurs before 30 June 2020, funds still need to prepare a written plan before 30 June 2021 to reduce the market ratio of in-house assets to 5% or below, but it will not undertake any compliance activity if the plan was unable to be executed because the market hasn’t recovered, or if the plan became unnecessary because of an upturn.

As always, please feel free to call your friendly Halletts team member if you would like to discuss.

Yellow house

As a result of significant declines in financial markets, the government has announced a reduction of 50% to the minimum pension requirements for the 2019/20 and 2020/21 financial years to assist retirees to preserve their capital and not be forced to sell more assets in the downturn.  For example, if your minimum percentage was 5%, it is now 2.5%.  This is a reduction in the minimum pensions amount only – you are still allowed to draw more!

 

This may mean you have already withdrawn your minimum pension for the current financial year and so can therefore cease withdrawing further funds…if you want to.  If you normally only make one withdrawal towards the end of the financial year, you are now only required to withdraw half the amount previously advised.

 

This link to the ATO website gives a good summary of the new measures and provides some examples to assist in understanding how it operates.

Please contact us at any time.

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Media Watch (general advice only…..)

You may be aware that one of the many government stimulus measures announced is to allow, in certain circumstances, the early and tax-free release of up to $10,000 of your superannuation balance in the period from now to 30 June 2020 and a further $10,000 in the period from 1 July 2020 to 24 September 2020. In what was obviously a slow news day (other than reporting on ‘you know what’) there has been some coverage of a potential ‘sizeable loophole’, ‘scam’, ‘rort’, opportunity to ‘exploit’ this concessional measure and further ‘sting’ an already wounded Treasury. Not sure which superlatives Andrew Bolt or Alan Jones are tossing around (and not sure we care either!). The ANU’s Tax and Transfer Policy Institute has even released a study on it, describing the concept as a manifestation of ‘tax arbitrage’.

While this may have some ears pricking up to spot a potential pot at the end of the rainbow, in reality this isn’t available to everyone and is aimed at a quite specific target demographic. As of 31 March, to apply for this stimulus measure according to the ATO you must:

  • Be unemployed; or
  • Be eligible to receive a JobSeeker payment (at this stage there is no mention of JobKeeper payments as such, largely because there is no legislation on this yet); or
  • On or after 1 January 2020:
    • Have had your role made redundant; or
    • Be working hours reduced by 20% or more; or
    • If a sole trader, have suspended your business or have had a reduction in turnover of 20% or more.

You are entitled to self-certify as to one or more of the above.

So, if you can step into the gift shop what do you get:

  • Tax-free withdrawal of up to $10,000 x 2, as noted above;
  • You can use these funds to make a concessional (deductible) contribution back into super, so long as the total of your employer contributions and your personal concessional contributions does not exceed $25,000 in each of the two financial years;
  • The contribution will be taxed at 15% in the hands of the fund, while you will save tax at your marginal tax rate. The maximum saving available is therefore $3,200 in each of the two financial years (being $10,000 x 47% less 15%), however, if you have had no employer super or you are unemployed then, in many cases, your marginal tax rate will be much lower.

What are you potentially risking (general advice only, and you should seek specific advice from a licensed financial planner or your super fund directly):

  • Cashing in some of your super when investment markets are low;
  • ‘Stuffing up’ and contributing too much such that you become liable for Excess Contributions Tax;
  • If the money doesn’t go back into super, you will miss the long-term future returns and growth (yes, one day…), potentially impacting on your retirement nest-egg;
  • Your life, TPD and income protection insurance cover inside the fund, as insurance may not continue to be available for accounts that are fully withdrawn or have a balance below $6,000 (check with your fund).

It’s human nature to seriously consider doing something just ‘because you can’ and it’s always worth considering all available options when some people can genuinely benefit, so if you think the above criteria might apply then let’s discuss it and see what the potential tax implications are for you. Or, speak to your financial planner about the other financial and investment considerations involved.

Please contact us at any time.

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