Temporarily reducing superannuation minimum payment amounts
Question: I am retired and receive an account-based pension from my SMSF. My account-based pension balance has been badly affected by the losses in the financial market because of the COVID-19 crisis. I would like to reduce my pension payments. Does the SMSF still need to pay me the minimum amount that was calculated based on my account balance at 1 July 2019?
Answer: Certain superannuation pensions and annuities are subject to rules about minimum and maximum amounts paid in a financial year. To assist retirees, the government has reduced the minimum annual payment required for account-based pensions and annuities, allocated pensions and annuities and market-linked pensions and annuities by 50% in the 2019–20 and the 2020–21 financial years.
Temporarily reducing rent
Question: My SMSF owns real property and wants to give my tenant – who is a related party – a reduction in rent because of the financial impacts of the COVID-19. Charging a related party a price that is less than market value is usually a contravention. Given the impacts of the COVID-19, will the ATO take action if I do this?
Answer: Some landlords are giving their tenants a reduction in or waiver of rent because of the financial impacts of the COVID-19 and we understand that you may wish to do so as well. Our compliance approach for the 2019–20 and 2020–21 financial years is that we will not take action where an SMSF gives a tenant – who is also a related party – a temporary rent reduction during this period.
In-house asset restrictions
Question: The downturn in the share 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?
Answer: If, at the end of a financial year, the level of in-house assets of a 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, we 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.
Super balance losses
Question: My super balance has been affected by downturns in the global economy. Can I claim this loss?
Answer: We understand that downturns in the global economy may impact on your super balance. Realised losses arising in a super fund may be available to the fund to deduct against realised gains in future years, however these losses are not available to you to deduct in your own personal tax return. As you don’t return any profit made in your super fund as assessable income in your personal tax return, similarly you can’t claim a deduction for the loss in your super balance. However if you made personal super contributions during the financial year to a complying super fund, you may be able to claim a deduction for those contributions.
Investment strategies
Question: The downturn in the market has impacted on my SMSF’s investment strategy. What do I need to do?
Answer: 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 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.
Where the assets of an SMSF or the level of investment in those assets fall outside of the scope of your investment strategy, you should take action to address that situation, which could involve adjustments to investments or updating your investment strategy. We don’t consider that short term variations to your articulated investment approach, including to 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.
Pausing or ceasing your business
Question: I have had to pause my business. Do I need to cancel my ABN and GST registration?
Answer: If you have temporarily ceased some trading activities in your business but you intend to restart when you can, you are not required to cancel your ABN and GST registration.
This is the case even where you have paused your business for a lengthy or uncertain time period.
You will only need to cancel your ABN and GST registration if you permanently cease your business.
Example – an enterprise that has not terminated
Jodie, who has been running a cafe for a number of years, is required to pause her business due to COVID-19. She does not provide takeaway services. Jodie is uncertain when she will reopen her business.
Jodie retains the café’s assets and continues to pay reduced rent on the premises. The business has not terminated and Jodie is not required to cancel her ABN. Jodie will continue to lodge her activity statements to claim GST credits for the GST on expenses related to her business.
Question: I have permanently ceased my business due to COVID-19. When do I need to cancel my ABN and GST registration?
Answer: If you need to permanently cease your business as a result of COVID-19, it is important that your tax affairs are finalised before you cancel your ABN.
Before you close your business you need to lodge your final activity statement. This allows us to finalise your account and issue any refunds that might be owed to you.
You will need to cancel your ABN and GST registration within 21 days of ceasing your business activities.
Question: When am I considered to have permanently ceased my business for GST purposes?
Answer: A business ceases when the activities related to that enterprise cease. That occurs when both of the following occur:
- All assets are disposed of or converted to another purpose or use. Disposal of assets may include the sale, scrapping, or other disposal of the assets.
- All tax obligations are satisfied.
There may still be some other activities undertaken to terminate the business. These activities may include the preparation of final accounts, activity statements and tax returns.
Cancelling your GST registration may affect some, but not all of your other registrations including:
- fuel tax credits
- luxury car tax
- wine equalisation tax.
Example – an enterprise that has not terminated and has unused stock
Joel has been running a craft shop selling craft supplies for a number of years. He decides to close his shop. All assets are sold with the exception of a number of stationery items. Joel expects to sell the stationery items in the future. In the meantime, he pays to have them stored in a commercial warehouse.
The enterprise has not terminated until the stationery is sold or is determined to be worthless or of little value.
Question: What are the tax consequences if I need to dispose of capital assets when ceasing or pausing my business?
Answer: There may be GST and CGT implications when you dispose of your capital assets.
For the most common topics you need to consider when selling or closing a business see Changing, selling or closing your business – things to consider.
Question: What tax and super obligations do I need to consider when closing my business?
Answer: You need to ensure that you continue to meet your tax and super obligations. This includes:
- fringe benefits tax
- pay as you go withholding
- eligible termination payments for your employees
- super guarantee for your employees
- capital gains tax (CGT)
- GST
You are still required to pay the minimum amount of super guarantee for your employees into the correct fund by the due date. This will be based on their eligible earnings for the quarter.
If you cannot pay the full super guarantee contributions, pay as much as you can to their fund by the due date. This will reduce the super guarantee charge. You will need to lodge a super guarantee charge statement within a month of the due date and pay the charge to us. If you are having trouble paying the super guarantee charge to us we can work with you to set up a payment arrangement.
Question: What records do I need to keep when ceasing my business?
Answer: If you close your business you will need to keep records relating to:
- sales (including the sale of your business and assets) and purchases
- payments to employees
- payments to other businesses.
Question: I am pausing or ceasing my business due to COVID-19. What steps do I need to take if I am reporting through Single Touch Payroll (STP)?
Answer: STP reporting includes important information the ATO may be able to use through these unprecedented times. Having the most up to date employment information will help us support the community.
If you are STP reporting, here’s what you can do:
- If you have had to let employees go – Make sure you report their cessation date in your STP report. If you have already paid them their final pay, you can still tell us this information by submitting an update event.
- If you won’t be paying employees for a while – You or your registered tax or BAS agent can let us know that you have no further requirement to report through
- the Business Portal (employers) – select Manage employees then STP deferrals or exemptions
- Online services for agents – select Business then STP deferrals and exemptions.
Question: I no longer have any employees due to COVID-19. When do I need to finalise my STP reporting for them?
Answer: For employees who have ceased employment you don’t need to wait until the end of financial year to finalise your STP data. Finalising is an important step as it enables individuals to lodge their tax return at the end of the year.
For more information please feel free to contact with us.
Address: Suite 19/328 Albany Hwy, Victoria Park, WA 6100, Australia
E-mail: enquiries@swanpartners.com.au
Phone: (08) 6162 9808