The ATO have accepted that self-managed superannuation funds (SMSFs) can provide rent relief and loan concessions to related parties because of COVID-19 without breaching the SIS Act, but there are limits – see other publications . https://cgw.com.au/publication/ato-updates-its-no-action-position-for-covid-19-rent-relief-provided-by-smsf-landlords-to-related-parties/ https://cgw.com.au/publication/smsfs-and-loans-from-related-parties-ato-provides-covid-19-relief-guidance/
In an addendum to the Auditor-actuary contravention report instructions, the ATO have made clear what they require auditors to obtain from SMSFs that have provided relief, so the auditor does not have to qualify audit reports or report contraventions.
Auditors must ensure that where an SMSF has provided rent relief to a related party, it satisfies the following.
- The rent relief must be on commercial terms, following either the National Cabinet Mandatory Code of Conduct , or otherwise substantiated with evidence about what other landlords are doing in the same circumstances. If the rent relief is not consistent with the Code, then auditors should ensure they have documents supporting the same kind of relief from arms-length landlords in the same situation.
- The rent relief must be as a result of COVID-19, so the SMSF must provide documentation of how the tenant has been affected.
- The rent relief must be documented. Auditors must require a contemporaneous document that amends the lease, and the parties must then comply with the new terms.
The same issues apply where rent relief is provided by an entity in which the SMSF has invested, rather than the SMSF itself.
Similarly, where SMSFs have provided loan concessions, auditors must ensure they have appropriate evidence and documentation.
- The concessions must be consistent with what the banks are providing. The ABA outlines what commercial lenders are doing, and an auditor can accept loan concessions as appropriate if consistent with this. Generally, interest should continue and be capitalised to the loan.
- The loan concessions must be as a result of COVID-19, so the SMSF must provide documentation of how it has been affected.
- The loan concessions must be documented, preferably as a formal variation to the loan terms.
Other challenges for auditors
There is a range of other information auditors should be ensuring they have in the appropriate circumstances.
- If the SMSF cannot obtain evidence to support values of assets, then auditors should explain in their contravention report why (if it is due to the impact of COVID-19, the ATO will take no action). Auditors should ensure they receive evidence of how the SMSF’s ability to obtain the valuation was affected by COVID-19.
- Auditors must be checking that any early release due to COVID-19 satisfies the eligibility criteria, including that the SMSF received the ATO determination before the release, that it was made in only one lump sum payment equal to the amount in the ATO determination, and that the trust deed allows the release.
If the auditor is satisfied of all the things the ATO has highlighted, then no contravention needs to be reported.
If the auditor is not satisfied as to all aspects, they should then qualify their audit and report the contravention if it meets the reporting criteria.
Auditors must ensure they obtain the appropriate documentation, or else consider qualifying their audit and reporting a contravention.