This article is dedicated for answering Frequently Asked Questions on COVID-19 super related measures and some of the key functionalities in Class.
The FAQs are sorted via the following categories;
50% Pension Minimum Reduction
|When did the government pass the law on this measure? How long will this temporary reduction in minimum drawdown rate last?
|This measure was passed through the Coronavirus Economic Response Package Omnibus Bill 2020 by both Houses of Parliament on 23 March 2020 and received Royal Assent on 24 March 2020. This temporary 50% pension minimum reduction measure applies to the 2019-20 and 2020-21 financial years.
|What is the purpose of this measure, how will reducing pension drawdowns help retirees?
|This measure is designed to assist pension account balances to recover from unrealised losses associated with the economic shock of the Coronavirus health crisis. It allows retirees to reduce their drawdowns, protect capital values and avoid the forced sale of assets in loss positions to fund compulsory pension minimum payments. The Government introduced similar measures during the Global Financial Crisis (GFC, specifically 2008-2011 (50% reduction) and 2011-13 (25% reduction)).
|What type of pension products will be supported for this 50% minimum pension reduction?
|This 50% pension minimum reduction measure will apply to:
|How does the reduced minimum annual payment apply for market-linked pensions (also known as term allocated pensions) for the 2019–20 and 2020–21 financial years?
|Market-linked pensions (also known as term allocated pensions) have a minimum and maximum payment limit, and the actual pension payment drawn for the year must be within these limits. The minimum/maximum payment limit, which is normally 90%/110% of the calculated standard annual pension level under a prescribed formula, has been reduced to 45%/110% for the 2019–20 and 2020–21 financial years as part of the government’s temporary reduction of superannuation minimum payment amounts.
|I am retired and receive an account-based pension from my SMSF. My account-based pension balance has been badly affected by the losses in the financial market because of the COVID-19 crisis. I would like to reduce my pension payments. Does the SMSF still need to pay me the minimum amount that was calculated based on my account balance at 1 July 2019?
|No. You can reduce the minimum amount your SMSF pays you by up to 50% of what is otherwise required based on your account balance at 1 July 2019 for the 2019–20 financial year. To assist retirees, the Government has reduced the minimum annual payment required for account-based pensions and annuities, allocated pensions and annuities and market-linked pensions and annuities by 50% in the 2019–20 and the 2020–21 financial years.
|I am retired and receive an account-based pension from my SMSF. My account-based pension has already paid me more than the reduced minimum annual payment required for the 2019–20 financial year. Is my SMSF required to continue making pension payments to me for the remainder of the year?
|No, if a member does not want to receive any further pension payments they can cease being paid the pension for the remainder of the year. This has to be communicated to the Trustee. It is important the SMSF trustee considers its trust deed, documents any changes and the reason for the change. This could be recorded in a minute or other contemporaneous document.
|My trustees have already signed the original pension reviews created on 1 July 2019 but before 24 March 2020. Now the pension minimum has been reduced by the Government, should I inform them and get them to re-sign the new ones?
|There is no compliance issue associated with an overpayment of pension minimum. However, it is prudent to inform your trustees about the minimum reductions, ideally document this through a new pension review minute, so trustees can either stop the pension payments if it already exceeded the minimum or consider commutations/lump sum payment for new payments on or after 24 March 2020, to claw back TBAR credits / protect capital values for pension accounts.
|I am retired and receive an account-based pension from my SMSF. My account-based pension has already paid me more than the reduced minimum annual payment required for the 2019–20 financial year. Is the amount over the minimum considered superannuation lump sum amounts?
|Pension payments that you have already received cannot be re-categorised. Accordingly, payments made from your account-based pension in excess of the new reduced minimum annual payment required for the 2019–20 financial year are pension payments (that is, superannuation income stream benefits) for the year and not superannuation lump sums. Payments made after 24 March 2020 and there was documentation (such a minute or resolution) stating that once the minimum was met, then the excess over and above the minimum will be treated as a lump sum, it is possible to process the payments as a lump-sum from the accumulation or as a partial commutation to the retirement phase income stream.
|My SMSF now has a considerable unrealised capital loss as a result of the recent downturn in the global economy. Can I re-assess my member’s super benefits that support the pension to work out the reduced minimum annual payment amount?
|The changes only provide for a halving of the minimum annual payment requirement as applicable to the pension account balance at:
|I am a trustee of an SMSF. I have paid more than the reduced minimum annual payment amount for 2019–20 financial year to a member of my SMSF. Can the member put the amount above the reduced minimum annual payment back into the SMSF?
|The member of the SMSF can put the amount back into the SMSF as a superannuation contribution if they are eligible to make superannuation contributions, subject to age restrictions and contributions caps.
Early Release to Super Benefits
|When did the government pass the law on this measure and when will the ATO accept the application on the early release of super benefits for members affected by COVID-19?
|The Coronavirus Economic Response Package Omnibus Bill 2020 received Royal Assent on 24 March 2020. The ATO will accept the application from 20 April 20202.
|Until when can the ATO receive the application?
|This is only a temporary measure to allow members affected by COVID-19 to access some of their super benefits.
|One of the members of the SMSF wants to apply for release of their super under the COVID-19 early access arrangements, what is the process?
|The member of the SMSF can apply for the release of their super under the COVID-19 early access arrangements through myGov. The ATO will then issue them with a determination advising of their eligibility to withdraw an amount. When the trustees receive the determination from the member, the trustees will be authorised to release the amount of super stated in the determination. If the current balance of the member’s account is less than the amount approved in the determination, the trustee can release the lesser amount. In Class, upon receiving the ATO's early release determination, the fund administrator/accountant can process a lump sum event using the new Condition of Release: Compassionate Ground - Coronavirus. The payment itself will normally be transferred from the SMSF's bank account to the member's personal bank account. The cash and business event can be matched off.
|How long will it take for the member to receive the rejection or approval notice? What timeframe is there for money to be transferred to the individual?
|All member correspondence delivered via myGov will be available within 2-3 days. Physical mail will be subject to postal timing. The SISR requires the payment to be made by the trustee to the member as soon as practicable.
|Can a member vary their application prior to it being processed within the fund? Can an application be revoked?
|Once an application is submitted it cannot be varied. However, an application can be revoked where there is a genuine error or mistake.
|Can a member apply for this early access under Compassionate Ground - Coronavirus multiple times provided the total amount is no more than $10,000?
|No. A member can only apply for one determination per financial year. However, a member can request $1K from an APRA fund and another $9k from the SMSF as long as it is in the same application. Members will not be able to make a subsequent application if they do not request or receive the full amount that has been approved.
|Will the bank account default to the member's Individual Income Tax Return account, or the bank account of the SMSF, or will the member have to re-enter the bank account details?
|The individuals will provide the bank account details in the application. Please do not enter the bank account of the SMSF. On the application enter the details of the member's bank account.
|Can an amount be released from a pension account (in the retirement phase)?
|Super cannot be released from a pension account under the coronavirus early access arrangements. The coronavirus early access arrangements allow a member of a superannuation fund to apply for the release of their preserved or restricted non-preserved benefits. If a member is receiving an account-based pension (that is not a TRIS) they would have met a condition of release with a nil cashing restriction. This type of condition of release converts any preserved and restricted non-preserved benefits the member had in their superannuation fund into unrestricted non-preserved benefits. As the coronavirus early access arrangements do not apply to unrestricted non-preserved benefits, amounts supporting the pension cannot be accessed under the arrangements. However, unrestricted non-preserved benefits can be cashed at any time by the member, subject to the rules of the fund and the account-based pension, that is, outside of the coronavirus early release measure.
|Can an amount be released from a transition to retirement phase income stream (TRIS)?
|TRIS must meet the requirements of ordinary account-based pensions, the additional requirements set out in r6.01(2) of the SISR that apply to annual payments from the pension account and the restrictions set out in r6.01AB of the SISR on when a superannuation lump sum resulting from the commutation of a TRIS can be cashed. The recent amendments to allow early access to super under the coronavirus early access arrangements do not vary the circumstances in which pension payments may be made from a TRIS or the circumstances in which an amount commuted from a TRIS can be cashed out of the superannuation fund. Hence, no amount in excess of what is already allowed to be cashed from a TRIS can be released under the coronavirus early access arrangements. However, a member who has a TRIS that comprises of preserved or restricted non-preserved benefits may be able to commute the TRIS back to the accumulation phase within the superannuation fund (in accordance with the rules of the fund and the pension). In such a case the preserved and restricted non-preserved amounts may then be eligible to be released under the coronavirus early access arrangements.
|Will the payment be subject to the proportioning rule and are there any PAYG withholding obligations?
|The payment is subject to the proportioning rules. However, the payment is not a "withholding payment" as defined in s995-1(1) of the ITAA 1997 and an amount is not required to be withheld from the payment as it is non-assessable and non-exempt (NANE) income (see. s12-1(1A) of Schd 1, TAA).
|Will the fund be required to seek proof of member's eligibility?
|No. The ATO will administer this measure through the application process, it makes the determination based on the member's self-assessment. The member needs to retain evidence to support their application. The fund will not have all the relevant information to be able to determine whether a person is eligible or not. Individuals will be warned during the application process about the penalties that apply to them if making a false and misleading statement. The individuals will make relevant declarations when they submit their application. Any compliance activity or potential fraud will be managed by the ATO with the individual.
|If my SMSF member does not meet the COVID-19 early access arrangements, is there any other way they can access their super?
|Subject to the terms of your trust deed, your member can access their super when they:
|Why is my SMSF not listed on myGov?
Some self-managed superannuation fund (SMSF) members requesting early release of super may not be able to see their SMSF in the list of available funds on myGov.
This can happen if the SMSF:
If your SMSF is not showing in your members list of available funds on myGov, your member can phone the ATO on 13 10 20 for help.
Other COVID-19 Related Issues
Subsequent Events NoteDo I need to prepare a Subsequent Events Note for SMSF for the impact of COVID-19, given the trustees have prepared the financial statements on the basis that the super fund is a non-reporting entity because the members are able to command the preparation of tailored reports so as to satisfy specifically all of their information needs and there are no other users dependent on the financial statements?
|The audit of SMSF is governed by Australian Auditing Standards, particularly Guidance Statement GS 009 Auditing Self-Managed Superannuation Funds, which paragraph 243 states the following: “ASA 560 (Subsequent Events) requires the auditor to apply audit procedures designed to obtain sufficient appropriate audit evidence that all events up to the date of the auditor’s report that may require adjustment of, or disclosure in, the financial report have been identified. Under ASA 560, audit procedures to identify such events, are performed as near as practicable to the date of the auditor’s report and may include reading the trustees’ minutes, making enquiries of the SMSF’s lawyers concerning litigation or a divorce and making enquiries of the trustees as to whether any subsequent events have occurred which might affect the financial report, such as sales of investments or significant adjustments to investment values.”
Strictly speaking, the Impact of Coronavirus on Financial Reporting and the Auditor’s Considerations - FAQs issued by AASB-AUASB seem to suggest that it will have a more severe impact on listed companies and general-purpose financial reporting compared to SMSFs. Given these COVID-19 implications happened well after 30 June 2019 reporting period, there are no adjustments required to the financial statements. However, it is prudent for the preparers of the financial statement (i.e. trustee or accountants of the SMSF), to make appropriate disclosure in the notes to the financial statement. ASA 560 Subsequent Events which applies to special purpose financial statement reporting requires the SMSF auditor to perform audit procedures designed to obtain sufficient appropriate audit evidence that all events up to the date of the auditor’s report have been identified, and if material, are properly disclosed and accounted for. This explains overwhelmingly this request to add this extra Subsequent Event Note is not triggered by SMSF accountants or administrators, but their Auditors of the SMSFs.
Refer to this KB article: How to add Subsequent Events Notes to the Financial Statement regarding COVID-19 to easily achieve this.
Related Party Limited Recourse Borrowing Arrangement ReliefMy SMSF has a compliant limited recourse borrowing arrangement (LRBA) in place with a related party. Would the non-arm's length income (NALI) provisions apply if the related party offers repayment relief to the SMSF trustees because of COVID-19?
|ATO understands that temporary repayment relief may be offered in relation to an existing LRBA between an SMSF and a related party due to the financial effects of COVID-19. If the repayment relief reflects similar terms to what commercial banks are currently offering for real estate investment loans as a result of COVID-19, the ATO will accept the parties are dealing at arm’s length and the NALI provisions do not apply. For example, these terms currently include temporary repayment deferrals for most businesses of up to 6 months, with unpaid interest being capitalised on the loan. The parties to the arrangement must also document the change in terms of the loan agreement and the reasons why those terms have changed. It is also expected that there is evidence that interest continues to accrue on the loan and that the SMSF trustee will catch up any outstanding principal and interest repayments as soon as possible. Any further repayment relief needed due to the continued effects of COVID-19 should be reviewed at the end of the agreed deferral period and remain in line with what the commercial banks are offering at that time.
Providing Rent ReliefMy SMSF owns real property and wants to give my tenant – who is a related party – a reduction in rent because of the financial effects of COVID-19. Charging a related party a price that is less than market value is usually a contravention. Given the effects of COVID-19, will the ATO take action if I do this?
|Some landlords are giving their tenants rent relief as a rent reduction, waiver or deferral because of the financial effects of COVID-19 and the ATO understands you may wish to do so as well. ATO's compliance approach for the 2019–20 and 2020–21 financial years is that they will not take action if an SMSF gives a tenant – even one who is also a related party – a temporary rent reduction, waiver or deferral during this period. If your SMSF holds an interest in an interposed entity such as a non-geared company or unit trust and that interposed entity leases property to a tenant, the ATO will not treat the investment in the interposed entity as an in-house asset for the current and future financial years as a result of a deferral of rent being provided to the tenant due to the financial effects of COVID-19. If there are temporary changes to the terms of the lease agreement in response to COVID-19, it is important that the parties to the agreement document the changes and the reasons for the change. You can do this with a minute or a renewed lease agreement or other contemporaneous documents.
In-house Asset RestrictionsThe downturn in the stock market may result in the fund’s in-house assets being more than 5% of the fund’s total assets. The in-house asset rules would be breached. What do I need to do?
|If at the end of a financial year, the level of in-house assets of an SMSF exceeds 5% of a fund’s total assets, the trustees must prepare a written plan to reduce the market ratio of in-house assets to 5% or below. This plan must be prepared before the end of the next following year of income. If an SMSF exceeds the 5% in-house asset threshold as at 30 June 2020, a plan must be prepared and implemented on or before 30 June 2021. However, the ATO will not undertake compliance activity if the rectification plan was unable to be executed because the market has not recovered or it was unnecessary to implement the plan as the market had recovered.
SMSF ResidencyAfter temporarily residing overseas for less than two years, the trustees/members were about to return to Australia but became stranded overseas because of the COVID-19 health crisis. This forced absence means they will be out of Australia for more than two years. What will this mean for the SMSF?
|An SMSF must be an Australian super fund to be a complying fund and receive concessional tax treatment. To be an Australian super fund an SMSF must meet three residency conditions:
Investment StrategiesThe downturn in the market has affected my SMSF’s investment strategy. What do I need to do?
|Trustees must prepare and implement an investment strategy for their SMSF, which they must then give effect to and review regularly. The strategy should be reviewed at least annually, and you should document that you’ve undertaken this review and any decisions arising from the review. Certain significant events, such as a market correction, should also prompt a review of your strategy and may require updating your investment strategy. If the assets of an SMSF or the level of investment in those assets fall outside the scope of your investment strategy, you should take action to address that situation. This could involve adjustments to investments or updating your investment strategy. The ATO does not consider short term variations to your articulated investment approach, including to specified asset allocations whilst you adjust your investments, constitute a variation from your investment strategy. All investment decisions must be made in accordance with the investment strategy of the fund. If in doubt, trustees should seek investment advice.