ATO extends Division 7A relief

The ATO made an extension relief for affected taxpayers and related SMSFs who are unable to meet the minimum yearly repayments on Division 7A loans due to COVID-19.

The ATO has confirmed it has extended the time to make minimum yearly repayments on Division 7A loans. Borrowers in SMSFs affected by COVID-19 can apply for administrative relief for Division 7A minimum yearly repayments.

“We know this has been another challenging year for many due to the ongoing effects of COVID-19,” the ATO said.

“To offer more support, an extension of the repayment period is now available for those who are unable to make their MYRs by the end of the lender’s 2020–21 income year (generally 30 June) due to the ongoing effects of COVID-19 under section 109RD.

“You can apply for administrative relief for Division 7A MYR using our streamlined online application. Please be aware, you must make up the shortfall of your 2020–21 MYR by 30 June 2022.”

A similar extension was also available for the 2019–20 MYR. The ATO reminded that if relevant SMSFs had obtained this extension, they must make up the shortfall of their 2019–20 MYR by 30 June 2021.

“If you don’t meet this deadline, you will need to either obtain a further extension of time for the 2019–20 MYR outside the streamlined process or amend your 2019–20 tax return to include a dividend,” the ATO said.

“The extension available through the streamlined online application for the 2019–20 and 2020–21 MYR is not intended to be available in the 2021–22 income year and beyond.

“We encourage you to review information available on our website or speak to your tax professional to determine your eligibility for this support.”

As Division 7A closely interacts with LRBAs, advisers will always need to be aware of the practical elements that can affect the SMSF’s position around the administrative relief.

In a recent SMSF Adviser podcast, Smarter SMSF CEO Aaron Dunn flagged that one of the key things SMSFs need to watch out for approaching the end of the financial year is to check up on existing LRBA loans and make sure “ducks are lined up in row”. He noted those especially affected by COVID compliance requirements and safe harbour rules can fall into unnecessary traps.

“Approaching 30 June, for SMSFs that have LRBAs in place particularly with safe harbour arrangements, need to make sure they are continuing to apply repayments and the interest rate in accordance with the movements of the safe harbour,” Mr Dunn said.

“Quite often, what I see is once it’s been put in place, it often becomes a ‘set and forget’, and funds need to be wary of changes to interest rates and the like. 

“There are also natural COVID-19 overlays around all these aspects that we have seen over the past 18 months that can be incorporated into the SMSF because there is a capitalisation of loans during periods of time.

“Just make sure your ducks are all lined up because you can very easily trip over the safe harbour requirements which could potentially take the fund into a non-arm’s length income position.”  

Tony Zhang
22 June 2021
smsfadviser.com