COVID-19 RELIEF SMSF BORROWING
COVID-19 has impacted the way we do business and the legal arrangements surrounding SMSF Limited Recourse Borrowing with a related party. If there has been hardship with the repayment of any loans as a result of COVID-19, the a SMSF borrower may qualify for COVID-19 relief on its repayments. If this is the case amendments must be made to the loan documents detailing this relief, to be compliant with Australian law.
Ordinarily, superannuation law in Australia prohibits SMSF borrowing from a related party on non-arm’s length terms, which is the point of a Limited Recourse Borrowing Arrangement. A Limited Recourse Borrowing Arrangement must be entered into in a manner which ensures that the borrower enjoys lending terms and conditions no more favourable to it than one would expect if the parties dealing at arm’s length. Therefore other than reasons of COVID-19, a SMSF would be in breach if relief was offered to the borrower with respect to repayments.
Luckily with the recent changes to legislation, the Australian Taxation Office has acknowledge that a SMSF should be permitted to accept temporary relief in an excising Limited Recourse Borrowing Arrangements. The Australian Taxation Office has announced that it will consider any relief between related parties as “arm length’s transactions” and the non-arm length’s provisions will not apply, if the relief is on the same terms as commercial banks. This means that any relief offered should be clearly documented detailing the terms of the relief and the reasons why the relief should be offered.
To be compliant the Australian Taxation Office requires that a Deed of Variation be executed between the parties which varies the existing loan agreement.
The team at Wallace Law Group can assist with preparing and finalising the Deed of Variation to ensure that your SMSF remains compliant with Australian Law. This is done a fixed fee basis of $550. Book an appointment today to discuss your legal needs admin@wallaceweir.com.au 1300 011 123
