The ramifications of COVID-19 will affect SMSFs for many years. One of the financial impacts is that an SMSF may provide rent relief to tenants or apply for loan repayment relief. The ATO has published a new guideline which explains how SMSF auditors will deal with rent relief.

SMSF auditors will need to form an opinion on whether this relief represents a commercial or arm’s length dealing in the current environment.

While they will be able to establish whether the rental or loan repayment relief is on commercial terms, there may be other contraventions that still arise:

  • the sole purpose test and providing financial assistance to a member of the fund (as per SMSF 2008/1)
  • the in-house asset provisions as rental deferral can amount to a loan

The situation becomes more complicated where the fund holds a property via an interposed company or unit trust, because the relief may trigger the events in regulation 13.22D thereby causing the related party entity to become an in-house asset.

The ATO has stated that they will not take compliance action under these circumstances, which includes imposing no penalties or disqualifying trustees for these types of breaches.

Most importantly, SMSF auditors will not need to report these breaches to the ATO in an Auditor Contravention Report. However, the audit report may still be modified in line with their requirements under professional auditing standards.

Where an SMSF auditor is not satisfied that the relief offered by the trustee is on commercial terms or has been provided to take advantage of the adverse financial impacts of COVID-19, the SMSF auditor is required to report the contravention and explain why they think there is a breach.

The ATO will investigate and take no compliance action against the fund, where relief was provided as a genuine result of COVID-19.

Commentary

ASF Audits welcome the guidelines provided by the ATO as it allows for a realistic and commercial blueprint for the treatment of interconnected contraventions triggered by COVID-19.

We will continue to work with our clients to ensure there is no added stress placed on them during the audit as a result of COVID-19.

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