Providing rental relief for the tenant in my SMSF property
The economic impacts of the COVID-19 crisis are causing significant financial distress for many businesses and individuals.
If your SMSF has a property and a tenant in financial distress, you may be able to provide your tenant with rental relief under an agreed commercial arrangement. This may even be the case when the tenant is a related party (your business) or Non-related party.
Ordinarily, charging a tenant a rate that is less than market value in an SMSF is usually a breach of superannuation laws. However, the ATO have provided guidance which allows SMSF landlords to provide for a reduction in or waiver of rent because of the financial impacts of the COVID-19.
For the 2019–20 and 2020–21 financial years, the ATO will not take action where an SMSF gives a tenant – who may also be a related party – a temporary rent reduction during this period.
There are some important things you should ensure are in place when you are providing a rent reduction to a tenant, especially when this is a related party.
- The financial difficulty faced by the tenant is linked to the financial impacts of COVID-19.
- Any negotiated rent relief will need to be measured against the COVID-19 financial impact suffered by your tenant. If tenant’s business is not affected due to COVID-19, he may not be eligible for SMSF Rent Relief.
- Clear arrangements which detail the amount of discount, waiver or deferral of the rent.
- In evidencing that the rent relief is reasonable, it would be best practice if it is consistent with an approach taken by an arm’s length landlord.
- Would the SMSF as the landlord offer the same terms to an unrelated third-party business tenant?
- If the answer is yes, then it’s likely the adjustments to the SMSF rental agreement with the related party tenant would be on arms-length.
- If the answer is no, then there could still be compliance issues for the SMSF.
- Ensure the relief only applies to rent.
- Any relief offered to a tenant can only relate to the rent component of the lease agreement. The ATO concession does not extend to other lease incentives.
What do you need to do?
Step 1. Check documentation such as lease agreements
This will give you a better idea of the extent to which the existing lease arrangement can be altered. A decently drafted document will have agreement variation provisions.
Step 2. Determine the way you can vary the agreement based on these factors and then propose an alternative arrangement.
This may take many forms including rental waiver, reduction or deferral as well as specifying a period or trigger for the termination of the relief.
Step 3. The outcome should be documented and accepted by both the trustees and the tenant.
- This may take the form of a signed minute, renewed lease agreement or anything deemed appropriate to amend the terms of the lease temporarily.
- Even if you are both the tenant and landlord, the above should all be documented.
These are extraordinary times and the ATO is providing this guidance to allow SMSF trustees to be flexible and agile.
If trustees act in good faith in implementing a reasonable and measured reduction in rent because of the impacts of COVID-19 they should not fall foul of the law.
Please note: If your super fund owns property via an interposed unit trust and your super fund wishes to provide SMSF rent relief to that related party (business entity) then please contact us.
How can we help?
If you need assistance providing rental relief or whether this is the right action for you and your specific circumstances, please feel free to give us a call so that we can discuss in more detail.
Further information on the ATO website regarding SMSF Rent Relief here
