The COVID new world

Author: Richard Webb, Policy Advisor Financial Planning and Superannuation, CPA Australia

The arrival of a deadly global pandemic has focused the world in ways people might not have expected. While we have had scares in the past with SARS and swine flu, the arrival of COVID-19 no doubt caught a lot of people by surprise. What has been most surprising is the extent to which life has ground to a halt.

The government was quick to move in relation to superannuation, announcing two measures.

And while the measure to allow funds paying pensions to halve the drawdown rate temporarily has attracted little in the way of comment, there has been substantial interest in the other measure to make up to $20,000 available to superannuation fund members by way of compassionate grounds releases between now and September.

In the world of Australian Prudential Regulation Authority (APRA)-regulated funds, attention has been focused on the ability, or potential lack thereof, for funds with high levels of unlisted assets to be able to pay benefits to all members who apply for these. However, very little attention has focused on SMSFs, possibly due to the perception that members are also required to be trustees and therefore more likely to know about any practical limitations affecting their funds, such as liquidity.

Also to blame may be the idea that SMSFs are mostly used by retirees even though ATO statistics show one-third of SMSF members are in the 35-44 age group alone.

Another perception is that SMSFs are really only affected by problems at lodgement time. Since the lodgement cycle for SMSFs can have a substantial lag on them –2018/19 annual returns for SMSFs have had their due dates extended to the end of June 2020 – anything going wrong now might not be picked up by trustees, their accountants or their advisers until this time next year.

It is also possible SMSFs are faced with different issues to those affecting APRA-regulated funds and these may be providing their own challenges. The ATO notes in its frequently asked questions facility a number of issues presently keeping trustees awake.

A considerable number of these relate to some very specific circumstances only likely to affect SMSFs.

For example, funds that lease business property to a related party are probably asking what actually is the current market rate of rent if a fund is leasing a business property to a related party and other landlords in the area are granting rent relief. Funds may also be asking how a fund avoids breaching the arm’s-length income test.

Another area where trustees need to maintain focus is in relation to investment values, particularly considering recent volatility. Have trustees considered how this might affect the fund’s compliance with its investment strategy?

The ATO has indicated some areas where it is willing to grant relief, such as the rent relief example above, where it has indicated it will not take action during the 2020 or 2021 financial years. The ATO has also indicated short-term variations would not be considered by them to be a departure from the fund’s stated investment intentions. However, given the breadth of difference between one fund and another, it is unlikely the ATO can announce assistance for all matters.

Ensuring a fund’s records are up to date is a duty trustees have and it is of paramount importance at this time. Trustees may need to retain not only proper fund records, but also copies of

ATO guidance and documented decisions made to ensure their auditors are satisfied with the actions they have taken.

This may also be an excellent opportunity for accountants and advisers to get in touch with their clients to ensure everything is okay in relation to their documentation. It may be, for example, time to re-examine a fund’s investment strategy if the trustees are struggling with their current one.

But with a health scare causing all this, it may just simply be an opportunity for an accountant or an adviser to check that their client is okay. And that might be all they need.