Frequently asked legal questions

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.