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Retirement

ATO won’t police SMSF rent relief

By Grace Ormsby · March 31 2020
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egg

Retirement

ATO won’t police SMSF rent relief

By Grace Ormsby
March 31 2020
Reading:
egg
egg
rent relief

ATO won’t police SMSF rent relief

author image
By Grace Ormsby · March 31 2020
Reading:
egg
egg
rent relief

In good news for SMSF landlords, the Australian Taxation Office has provided useful advice around rent relief and a handy concession for certain tenants.

Last week, nestegg reported that while SMSF-owned property landlords could provide tenants with rent relief, Cooper Grace Ward Lawyers had noted that “it’s fraught with potential compliance risks where the tenant is a related party or related trust, or if a member, relative or related party or trust has an underlying economic interest in the tenant”.

Since then, the ATO has provided some guidance for SMSF landlords, which Cooper Grace Ward Lawyers has lauded as a “useful concession”.

Here’s the ATO’s position:

The ATO has confirmed that SMSFs can provide tenants with a temporary rent reduction, including to 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.

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

Cooper Grace Ward Lawyers has flagged that “as a result, an SMSF can provide a temporary rent reduction immediately without fear of the ATO taking adverse action”.

As of yet, the only requirement for this concession is that the rent reduction must be temporary.

But note, this concession does not apply to any other lease incentives or relief – only the temporary reduction of rent.

According to the law firm, this means 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).

Given current business challenges, “the ATO’s position is that there is no need for the rent reduction provided to be justified by market evidence”.

This means the SMSF can determine the reduction in its absolute discretion.

So, what should SMSFs do?

Cooper Grace Ward has noted that although the concession is “extremely broad”, it is important that it is not abused.

It advises that SMSF landlords should provide rent reduction 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”.

Best practice is that it is consistent with the approach taken by arm’s length landlords, it advised.

In addition, the rent reduction that is agreed to should be properly documented as it is an amendment to lease terms, since it’s likely SMSF auditors will be required to report any reductions.

ATO won’t police SMSF rent relief
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About the author

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

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About the author

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

Join The Nest Egg community

We Translate Complicated Financial Jargon Into Easy-To-Understand Information For Australians

Your email address will be shared with nestegg and subject to our Privacy Policy

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