SMSF rent relief during Covid-19 crisis
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SMSF rent relief during Covid-19 crisis

By Adrienne Gledhill, Accountant Adviser, MB+M

While under normal circumstances there is a requirement that SMSF rentals to be at proven market rates, the ATO has waived this requirement because of the financial effects in the current environment. Thus ATO has given permission for SMSF rent relief during Covid-19 crisis for the 2019/20 and 2020/21 financial years.

This means that SMSFs that own commercial premises leased to a related party have some relief from the impacts of COVID-19.

Here’s the ATO’s position:

The ATO has confirmed that SMSFs can provide tenants with a temporary rent reduction, including tenants who are a related party or related trust, and where a member, relative or a member or related party/trust has an underlying economic interest in the tenant.

While this would normally trigger a range of SIS Act compliance breaches, the Tax Office showed that it won’t be taking compliance action for either the 2020 or 2021 financial years.

This means that an SMSF can provide a temporary rent reduction immediately without fear of the ATO taking adverse action.

A temporary, restricted measures

The rent reduction must be temporary and does not apply to any other lease incentives or relief – only the temporary reduction of rent.

The SMSF can determine:

  • The amount of rent reduction provided.
  • How long to provide the rent reduction for (Note: the no compliance approach taken by the ATO is currently only applicable for FY 2020 and 2021).

It is important that people do not abuse this measure. The purpose of the measure is to provide rent relief to tenants who are suffering the effects of the COVID-19 crisis, and that this rent reduction should be reasonable and measured to the COVID-19 impact suffered by the tenant.

Documentation

Any rent reduction should have supporting documentation, as it is an amendment to lease terms since it’s likely SMSF auditors will be required to report any reductions.

The measure will ease compliance concerns for SMSFs with tenants unable to pay rent and also offer relief for trustees that want to provide their related party a rental abatement for a period.

Rent relief in Superannuation Funds

For those of you with rental properties in your Self Managed Superannuation Funds, you might wonder how you will deal with these rental arrangements considering Covid19. Even more so if the rental property is leased to your business. 

There is a series of letters & minutes that it requires you to document the rent reduction.

If you are considering a rental relief situation, you will need to ensure that your fund takes the actions, thus ensuring there are no problems encountered down the track.

MB+M’s expert team can assist with these complex matters. Please call us on 03 5821 9177.

Kind Regards,

Adrienne Gledhill
Accountant Advise
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ATO Link: Self-managed super funds

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