As parts of Australia work through further periods of lockdown, the Australian Banking Association (ABA) has once again provided an update as to how banks will continue to support customers in NSW and Victoria with loan deferral support.
Throughout the COVID-19 emergency period in 2020, the ABA provided loan repayment relief, whereby borrowers were provided with a repayment holiday and interest was capitalised to the loan.
From a LRBA perspective, this created some potential issues for related party loans with the non-arm’s length income (NALI) rules. Where an SMSF loan deviated from the safe harbour set out within PCG 2016/5, the Commissioner’s view was that it may apply the NALI rules to both the ordinary and statutory income of the investment (e.g. property).
However, the ATO did provide COVID-19 relief with these arrangements – refer to our previous articles on this topic for more info:
The impact of COVID-19 lockdowns in 2021
With lockdowns getting tighter in NSW and likely to continue as for Victoria (5.0), the ABA has announced a number of measures to continue to support businesses and individuals currently impacted by these closures and inability to work.
As part of this announcement, loan support measures including deferrals on a month-by-month basis are available. Whilst this would naturally apply to LRBA loans with banks, it would seem consistent for such deferrals also be allowed for related party loans without triggering any NALI issues. The ATO has previously stated this to be the case with their COVID-19 compliance relief, so it would seem likely to apply again.
It should be noted that it would not apply universally to SMSFs, but is more targeted to those areas continuing to be impacted by COVID-19 related lockdowns. Most importantly and for audit purposes, putting in place evidence to support the relief and alignment to the ABA’s guidance will be crucial.
It’s a difficult time for many businesses and individuals struggling through another period of economic challenges due to COVID-19. This relief would be a welcome relief, although unfortunately for some, it won’t be enough.
