The challenge of the current pandemic is not over, and, as it stands, many funds are affected negatively as the markets are in decline. Administrative and operational changes in the self-managed superannuation funds have been implemented by the government and below are some of the most important ones:
Reduction in pension payments
The market losses affecting the superannuation balances of members mean that continuing the minimum pension payments as it was prior to the health crisis would cause the fund to unnecessarily deplete its liquid assets to meet the legal requirements. To protect the fund, the government has reduced the pension payments by 50% in both 2019-20 and 2020-21 financial years.
If you have commenced pensions part-way in either of these years, the 50% reduction applies to the minimum annual payment that is calculated proportionally to the account balance on commencement day.
If by this point you have paid the minimum drawdown, payments can be stopped for the remainder of the year.
If you have already paid more than the reduced minimum drawdown, you can re-contribute these amounts, subject to eligibility to make contributions and other rules or limits (such as contribution caps).
$10,000 early access to super
This temporary measure allows individuals to withdraw $10,000 out of their fund in 2019/20 and a further $10,000 in 2020/21.
To be eligible, you should be able to satisfy at least one of the following criteria to be able to access your super from mid-April:
- You are unemployed
- You are eligible to receive a job seeker payment, youth allowance for jobseekers, parenting payment (single or partnered), special benefit or farm household allowance
- On or after 1 January 2020,
- You were made redundant
- Your working hours were reduced by at least 20%
- If you are a sole trader –
- Your business was suspended; or
- Your turnover has reduced by 20% or more
These amounts are tax-free, and amounts received will not affect Centrelink or Veterans’ Affairs payments.
You can apply through your MyGov account and the ATO will handle your request. If you are determined to be eligible, you need to inform the SMSF trustees about the receipt of your determination so they can make the payment to you.
SMSF related-party rental agreements
The ATO has temporarily eased their compliance approach for the 2019/20 and 2020/21 financial years in terms of charging market value rental payments, as reduction of such is being offered to related-party tenants to offer relief. However, this decision should be hinged on what is in the best interests of the SMSF. The adjustments to the rental agreement should depend on:
- Circumstances of the tenant (including its cash flow and COVID-19 restrictions placed upon them)
- Terms of the existing lease
- Location of the lease (is it leasable to other less affected tenant?)
- Comparative rent relief being offered by arm’s-length landlords
- Fund liquidity – especially when pensions are being drawn and loans being paid
Enough evidence to justify the rent relief is crucial, as SIS Act compliance risks are serious. AS such, the following documentation is suggested:
- A letter of request from the tenant requesting rent relief, and stating the reason why the relief is needed (it must be COVID-19-related)
- Minutes of trustees meeting, to consider the relief requested.
- A letter confirming the relief, and the timeframe it will be effective
- Renewed lease agreement
Investment strategy review
The ATO expects that the investment strategy is reviewed regularly (at least annually) and such review must be documented including the decisions arising from the review. When significant events affect the SMSF, another review should be undertaken and the result of which may require updating the investment strategy.
If the level of investment in the assets of the SMSF has fallen outside of the scope of the investment strategy because of COVID-19, you should address the situation by adjusting either or both the investment levels and updating your investment strategy.
The ATO has recently advised that the process of formulating an investment strategy by specifying investment ranges of nil to 100% for each class of investment is not valid. Trustees must state in the strategy the plan on how to invest the super and/or explain why the ranges of the investments satisfy the members’ retirement goal.
If in doubt, the trustees should obtain investment advice. The information provided above is generic only and not personalised advice. If you need to discuss SMSF administration we can help, alternatively if you need investment and personal advice regarding your superannuation and goals, we can put you in contact with a financial planner.