In the lead-up to 30 June this year, the ATO announced it would allow an extension of time to meet the minimum yearly repayment for a complying Division 7A loan for those impacted by COVID-19.
The extension means that a shortfall in the minimum yearly repayment will not be treated as a deemed dividend at the end of the lender’s 2019–20 income year if the shortfall is paid within the extended time.
Taxpayers who are affected by COVID-19 can request the extension through an ATO form.
COVID-19 has also impacted the ability of some SMSFs to make the minimum annual repayment required for Division 7A purposes by 30 June 2020.
In a discussion with the SMSF Association, the ATO has now confirmed that SMSFs in this position will also be able to use the ATO’s streamlined application process to apply for an extension of time to meet the minimum yearly repayment on complying Division 7A loans.
ATO assistant commissioner, SMSF segment, Steve Keating stated that the extension of time is available to SMSFs, but he stressed that “SMSFs must make up the shortfall of the minimum repayment by 30 June to ensure the shortfall being assessed as a deemed dividend”.
He also pointed out that SMSFs with related-party LRBAs also need to be aware of potential non-arm’s length income implications.
The ATO, he said, has previously confirmed that where a related party offers payment relief to SMSF trustees in response to COVID-19, and the payment relief terms are on similar conditions to what commercial banks are offering in relation to real estate investment loans, the “ATO will accept that the parties are dealing on a non-arm’s length basis”.