Can Self-Managed Super Fund (SMSF) landlords provide rent reduction to a related party without breaching the SIS Act due to COVID-19?

30 March, 2020 Paul Lewty Property, SMSF, Taxation

The ATO have confirmed that SMSFs can provide ‘a temporary rent reduction’ to tenants, including a tenant:

• who is a related party or related trust
• where a member, relative or a member or related party/trust has an underlying economic interest in the tenant.

Although this would normally trigger a range of SIS Act compliance breaches, the ATO has indicated that it will not take compliance action for either the 2020 or 2021 financial years.

As a result, an SMSF can provide a temporary rent reduction immediately without fear of the ATO taking adverse action.

What do I need to provide if I do decide to give rent relief to my related party?

 The ATO reduction concession is very broad, it is important not to abuse this. The auditor of the fund would expect a similar approach taken by arm’s length landlords.  We would expect the following to be documented;

• Amendment to the lease agreement,
• Comparative rent relief being offered by arm’s length landlords and
• A letter from the tenant to the landlord outlying the above

https://www.ato.gov.au/Individuals/Dealing-with-disasters/In-detail/Specific-disasters/COVID-19/?anchor=Selfmanagedsuperfunds#ReducingRent

Need help?  Call one of our Superannuation Accountants on 5437 9900.

Paul Lewty