Five tips for managing Self-Managed Super Funds during COVID-19

Apr 28, 2020 | Tips

If you’re managing Self-Managed Super Funds (SMSFs), you may have experienced firsthand the impact the COVID-19 is having on the Australian market and economy.

To help make it easier, we’ve listed five tips for managing SMSFs during COVID-19.

1) Temporarily reducing super minimum payment amounts

The federal government has reduced the minimum annual payment requirement for account-based pensions and annuities, allocated pensions and annuities, and market linked pensions and annuities by 50% in the 2019-20 and 2020-21 financial years.

2) Temporary rent reduction

If your SMSF has invested in a residential property, you can give a rent reduction to the tenant even where they’re a related party.

Usually this would involve a breach of the ‘sole purpose test’, however, the ATO has stated they’ll not take action against a SMSF who gives a rent reduction to a related party for the 2019-20 and 2020-21 financial years.

3) In-house asset restrictions

Funds with in-house assets lower than 5% before COVID-19 may now find that amount increases past the 5% – what can they do? They must write a plan to rectify the situation (as per normal requirements) and the ATO will not take action if the plan is unable to be carried out if the market does not recover or if the plan is unnecessary when the market recovers.

4) Investment strategies

A downturn in the market may affect a SMSF’s investment strategies. Therefore, trustees should review their strategies and update them to mitigate the effects of COVID-19.

The ATO doesn’t consider short term adjustments to investment strategies to constitute a variation of the investment strategy.

5) Early access to $20,000 of superannuation

Those facing financial hardship will be able to access two tax free tranches of $10,000 from their superannuation accounts. Those looking to do so should consider the trade-off between your present situation and the position you wish to be in at retirement age.

Some have suggested that the removal of $20,000 from your super can result in a significant hit. When you retire at age 67 or later, a conservative estimate would see that amount double or triple.

It’s wise to use tools like the ASIC Moneysmart retirement planner to improve the accuracy of your decision making.  There are other factors which will need to be considered as well, which include:

  1. Thinking about your household situation. Specifically, whether your spouse is comfortable removing amounts from superannuation.
  2. Future investment and growth within the fund are not certain.
  3. If you’re young, you’ll have plenty of time to catch up on any losses. However, saving for retirement and catching up on lost savings will require careful budget planning.

Reckon Docs provides a flexible SMSF trust deed, prepared by P G Gell Legal Services; combined with professional supporting documentation, is all you need for your new SMSF.  More information on Reckon Docs, visit https://www.reckon.com/au/docs/smsf/

By Adrian Wyper – PG Gell Legal Services Pty Ltd

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The contents of this blog is of a general nature and for guidance only. Reckon Docs or APS do not provide professional advice. Readers should consult with a professional adviser for advice on their specific circumstances.

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