- Due to the financial impacts of COVID-19, some SMSFs have had to either, provide rental relief to tenants or apply for loan repayment relief.
In these situations, auditors will need to form an opinion on whether this relief represents a commercial or arm’s length dealing in the current environment. You can use the following resources to assist in this process:
- National Cabinet Mandatory Code of Conduct for commercial leasing principles
- information on the Australian Banking Association’s website for commercial loan relief.
As an auditor, you can use your professional judgment to form an opinion on the commerciality of the arrangement providing:
- the relief looks reasonable, and
- the trustee is able to show evidence the relief was documented and offered as a result of the adverse financial impacts of COVID-19.
We acknowledge that while auditors should be able to establish whether the rental or loan repayment relief is on commercial terms, other contraventions of the super laws may still arise. For example, where the rental relief is offered to a related party, contraventions of the following super laws may also arise:
- the sole purpose test and providing financial assistance to a member of the fund (as per SMSFR 2008/1)
- the in-house asset provisions as a rental deferral can amount to a loan.
Further, if the fund holds a property via an interposed company or unit trust, the relief may trigger the events in regulation 13.22D thereby causing the fund’s investment in the interposed entity to become an in-house asset.
Our current approach to these contraventions is outlined on our SMSF FAQs for COVID-19 and states we will not take compliance action. This includes not imposing penalties or disqualifying trustees for these types of breaches.
To make it easier for auditors, we are currently updating the Auditor/Actuary Contravention Report (ACR) instructions for the 2020 income year to state you will not need to report these breaches in the ACR. The SMSF independent auditor’s report should nevertheless still be modified for material contraventions in accordance with the auditing standards.
If you are not satisfied the relief offered by the trustee is on commercial terms or it has been offered due to the adverse financial impacts of COVID-19, you should report the contravention and explain in the ACR why you think there is a breach. If we subsequently find the relief was genuinely provided as a result of COVID-19 then we won’t take compliance action against the fund.