13.22C relief tested during COVID

13.22C relief

Regulatory and compliance relief for 13.22C breaches could be introduced after they were given a live test as part of the COVID-19 relief measures.

Steps to provide regulatory and compliance relief for minor breaches related to 13.22C non-geared unit trusts and in-house assets were absent in the budget, but should be easy to implement based on COVID-19 relief measures, according to the SMSF Association (SMSFA).

SMSFA policy manager Tracey Scotchbrook said the association had called for relief in its pre-budget submission, but noted it was not addressed in the government’s October budget, however, the measures used to provide COVID-19 relief in 2020 and 2021 showed permanent relief measures were possible.

Speaking during a recent post-budget presentation, Scotchbrook said changes were needed to Superannuation Industry (Supervision) (SIS) regulations 13.22C and 13.22D as they currently contained no materiality or threshold test.

“A small breach can actually cause a non-geared unit trust to lose the in-house asset exemption and be classed as an in-house asset,” she said, adding a common breach of SIS regulation 13.22C was the inclusion of a borrowing in the trust, which could be the result of a small overdraft in the trust’s bank account.

“If we have a bank account that goes into overdraft, for example, there is no ability to rectify that because once the breach has occurred and the borrowing is in place, that non-geared unit trust is in fact tainted.”

She noted the only solution was to wind up the arrangement, but this was not the case under the COVID-19 relief offered during 2020 and 2021.

“The only way to rectify that minor breach is to wind up that arrangement, which may require transferring property, there may be some stamp duty, tax, capital gains tax and GST (goods and services tax) issues, as well as transaction and legal costs in collapsing that arrangement, which are disproportionate to the value of the breach,” she said.

“We saw some COVID relief measures around non-geared unit trusts and in-house assets to do with rental relief for business real property, for example, and that worked quite well.

“We would like to see some similar legislative relief brought in to address minor breaches to allow those to be rectified and to allow trustees to work with the ATO commissioner and for them to have the ability to apply their discretion.”

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