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Superannuation
Superannuation (SMSF) document

SMSF Borrowing COVID-19 Relief

Document repayment relief arrangements to stay compliant with super law. Can be used with a Cleardocs or Non-Cleardocs limited recourse borrowing (related party) arrangement.

Use Cleardocs to:

  • easily record where a lender, as a result of COVID-19, grants repayment relief to the SMSF borrower; and
  • to vary an SMSF's borrowing (or "limited recourse borrowing") agreement so that it records this arrangement as required by super law.

You can use this product even if the SMSF borrowing documents were not set-up through Cleardocs.

You can use the product where the lender is a related party to the SMSF borrower (but not if the lender is a bank).

$198.00
  • Cleardocs fee incl GST $198.00
Product Information

Does your SMSF's Borrowing require COVID-19 relief and should it be documented?

If an SMSF has entered into a Limited Recourse Borrowing Arrangement with a related party, and is experiencing hardship with its repayments as a result of COVID-19, then the SMSF borrower may qualify for COVID-19 relief on its repayments. Arrangements need to be documented for it to be compliant with super law, the evidence that needs to be retained is outlined using Cleardocs SMSF Borrowing (COVID-19 Relief) product.

Is an SMSF generally allowed to accept loan repayment relief from a related party lender? No.

Ordinarily, super law prohibits an SMSF from dealing with a related party lender on non-arm's length terms - the point of a Limited Recourse Borrowing Arrangement (LRBA) is that it is entered into on arm's length terms or in a manner which ensures the borrower enjoys terms and conditions which are no more favourable to them than one would expect if the parties were dealing at arm's length. Accordingly, other than in respect of COVID-19, a SMSF which is party to a loan with a related party lender on terms which offer repayment relief would ordinarily breach super law.

Is an SMSF allowed to do so in response to COVID-19? Yes.

Not with standing the general position described above, the Australian Taxation Office (ATO) has acknowledged that an SMSF would be permitted to accept temporary relief in relation to an existing LRBA between the SMSF and a related party due to the financial effects of COVID-19.

The ATO has announced that it will consider that any relief between related parties will be regarded as arm's length dealings and that the non-arm's length income provisions will not apply if the relief is on similar terms to that offered by commercial banks, (e.g. no reduction in interest rates, no reduction in loan terms, relief on repayments up to 6 months or more if required, interest is capitalised on the loan amount.) The parties must document the arrangement and the reasons why the terms of the loan agreement have been changed.

How do I know if I can qualify for COVID-19 repayment relief for my limited recourse borrowing arrangement?

This is a matter that requires self-assessment and is made by agreement between the related-party Lender and Borrower. However, evidence of the reasons why the relief is being granted must be provided by the Borrower to the Lender and needs to be ready to be produced to the ATO if ever requested in order to substantiate the reasons for relief being granted.

How should an SMSF document the COVID-19 relief?

The ATO requires that the change in the terms of the loan agreement must be documented by the parties and the reasons why those terms have changed. The new Cleardocs SMSF Borrowing (COVID-19 Relief) product which includes a Deed of Variation to vary an existing loan agreement is an easy way to alter an existing LRBA to:

  • record the temporary changes to a loan agreement (which reflect the above requirements of the ATO); and
  • record the reasons why relief is being offered.

What if the SMSF is already making smaller repayments due to COVID-19?

If the parties have already applied repayment relief but have not yet formally documented it - they will need to record it in writing as soon as possible. The Cleardocs SMSF Borrowing (COVID-19 Relief) product allows the parties to enter an effective date from which the repayment relief commenced. This allows parties to properly document the terms of the relief even where they have already started making reduced repayments.

Frequently Asked Legal Questions

Cleardocs is not a law firm. So as with all the legal material on this site, the answers to these "frequently asked legal questions" are provided by the law firm Maddocks. Cleardocs does not endorse those answers.

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What date does the agreement need to be entered into by?

The ATO has not specified a date. However because the relief relates to a borrower who is impacted by COVID-19, the date of the agreement should be within the period during which the borrower is suffering from those impacts.

Can it have an effective date?

Yes, the parties can agree the effective date from which the repayment relief applies. This allows the parties to properly document the terms of an agreement they have already reached, regarding repayment relief.

How long can the relief be offered?

The ATO does not mention a specific date. The relief should be provided for so long as is required by the Borrower but no more than what is being offered by commercial banks. Currently, some commercial banks are only offering a deferral on repayments for up to 10 months. To reflect the same arrangements as commercial banks, the product only allows relief for up to 10 months and does not allow you to obtain relief for repayments which fall due later than 31 January 2021. If relief is required to continue after 31 January 2021, then this product permits the parties to vary their arrangements by agreement.

What are the COVID-19 relief measures afforded to SMSF related party limited recourse borrowing arrangements?

The ATO has announced that it will consider that any relief between related parties will be regarded as arm's length dealings and that the non-arm's length income provisions will not apply if the relief is on similar terms to that offered by commercial banks, (e.g. no reduction in interest rates, no reduction in loan terms, relief on repayments for up to 10 months, interest is capitalised on the loan amount.) The parties must document the arrangement and the reasons why the terms of the loan agreement have been changed.

Have there been changes to the law which reflect the COVID-19 SMSF related party limited recourse borrowing relief?

As at June 2020 there have not been any changes to the law.

How do I know if I can qualify for COVID-19 repayment relief for my limited recourse borrowing arrangement?

This is a matter that requires self-assessment and is made by agreement between the related-party Lender and Borrower. However, evidence of the reasons why the relief is being granted must be provided by the Borrower to the Lender and needs to be ready to be produced to the ATO if ever requested in order to substantiate the reasons for relief being granted.


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