First and foremost – I can’t stress enough that everyone’s situation will be different and the actions you take should be based on your personalised advice from a licensed financial adviser. Below are some ideas we think you should keep in mind so that you don’t give in to temptation and just raid your super fund without understanding the ramifications.
Top considerations to help take the pressure off:
Many business owners are already engaging with their landlords to negotiate reduced rent during this time. If you have a property in your SMSF that is being rented to a related party – there is no reason you can’t do the same and in fact, this is much better than just stopping your rent payments altogether.
However, there are some key guidelines you should follow:
- The tenant needs to formally write to the SMSF as the landlord to ask for a negotiation of rent.
- The negotiation and the agreement still needs to be handled in a commercial arms-length manner. We recommend that you have a commercial lawyer involved in this process as they will be able to provide guidance as to what is currently happening in the market – so they can help you benchmark it for an arms-length terms.
- Consider time periods and potential ways the rent may be caught up in the future?
- The SMSF as a landlord also needs to consider and obtain advice as to what are the risks to the fund of losing a tenant, or if there is any real opportunity to replace tenants in the future.
- Documenting the decision-making process is going to be key! Providing evidence of the commerciality of the agreement and why this is beneficial to the SMSF during this time is going to be very important.
SMSFs with borrowing arrangements
Cash flow for an SMSF also needs to be considered during this time. If your fund is receiving reduced rent or potentially reduced/no contributions during this time you need to consider how the fund will make the loan repayments.
- Do your cash flow
- Talk to your bank early about what relief you can get from loan repayments during this period
- If it’s a related party loan – you may not be able to re-negotiate this loan and you should consider getting personalised advice before changing your loan agreement.
Other legal access to Super
There are potentially other options for you to legally access your super during this period, but each situation will be different. So, I urge you to call us to talk about these options, for example, you might be able to do:
- A related party loan that meets the SMSF in-house asset investment rules
- Access super under financial hardship or compassionate grounds
- Commence a Transition to a Retirement income stream
The worst thing you can do at this point in time is act without advice. If you are considering your financial options we can help you work through the compliance options that will save you from severe penalties and long term financial ramifications.
Please call your adviser or our super specialist Megan Kelly so we can help you plan out your next steps.
Information provided in this blog and on this website is general in nature and does not constitute financial advice. Every effort has been made to ensure that the information is accurate, but information may become outdated as legislation and new government announcements are made. Individuals should not rely on this information to make a financial investment decision as it does not take into account their personal circumstance. Before making any decisions, we recommend you consult a licensed adviser to take into account your particular financial situations and needs.
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