This page is dedicated to answering some of the Frequently Asked Questions on COVID-19 super related measures.
In-house Asset Restrictions
The 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.
After 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:
- The fund was established in Australia, or at least one of its assets is located in Australia;
- The central management and control of the fund is ordinarily in Australia;
- The fund either has no active members or it has active members who are Australian residents and who hold at least 50% of the total market value of the fund's assets or super interest.
The second and third conditions are relevant in this case. The COVID-19 health crisis has resulted in many countries imposing travel bans and restrictions and a high degree of uncertainty generally around international travel.
If the individual trustees of an SMSF or directors of its corporate trustee are stranded overseas due to COVID-19, in the absence of any other changes in the SMSF or the trustees’ circumstances affecting the other conditions, the ATO will not apply compliance resources to determine whether the SMSF meets the relevant residency conditions.
The 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 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.