Can you get rent relief where your SMSF is your landlord?
I have received the following information from the SMSF Association, as a member service following its dialogue with the Australian Taxation Office:
Question: My self managed super fund (SMSF) owns real property and wants to give my tenant – who is a related party – a reduction in rent because of the financial impacts of the COVID-19. Charging a related party a price that is less than market value is usually a contravention. Given the impacts of the COVID-19, will the ATO take action if I do this?
Answer: Some landlords are giving their tenants a reduction in or waiver of rent because of the financial impacts of the COVID-19 and the ATO understands that you may wish to do so as well. The ATO's compliance approach for the 2019–20 and 2020–21 financial years is that they will not take action where an SMSF gives a tenant – who is also a related party – a temporary rent reduction during this period.
This is a very sensible concession, which I welcome. It acknowledges the reality of temporary lower rents which are being sought and provided in today’s economic climate.
However, anyone who seeks to obtain a financial benefit from the Commonwealth, which includes availing yourself of an ATO concession, needs to ensure that it is obtained in line with the intention of its provision.
This means you should only seek to pay a lower rent to your SMSF if it is a related party’s business landlord if the business is now or will be impacted by the virus. The amount and extent of the reduction should be in line with the impact on the business. In other words, you should only seek, and the SMSF should only allow, the sort of rent reduction that would have been negotiated had the landlord and tenant been at arm’s length.
My recommendation would also be for a level of formality, with the tenant documenting in correspondence to the SMSF the impact on its business and therefore the amount and length of reduction sought. The SMSF should also formally reply and the revised lease terms should be properly applied.
After COVID 19 is a distant memory, the ATO will have the ability to second guess whether SMSF rent reductions were within the spirit of its concessions. If the rent reduction is considered inappropriate at that time, then the SMSF could face adverse implications.
An SMSF with arm’s length tenants should go through the same process recommended above if requests for rent reduction are received. Genuine cases should be sympathetically considered and the trustees of the SMSF should contact the SMSF’s financier if there are borrowings.