ATO updates its no action position for COVID-19 rent relief provided by SMSF landlords to related parties

The ATO has now clarified two aspects of its no action position for SMSF landlords providing rent relief to related party tenants because of COVID-19.

We have written about the issues with SMSF landlords providing related party tenants with rent relief – see SMSF landlords – can you agree to COVID-19 rent relief? and SMSF landlords – ATO provides guidance on providing temporary COVID-19 rent reduction

The ATO has now clarified two aspects of its no action position for SMSF landlords providing rent relief to related party tenants because of COVID-19.

Where the landlord providing rent relief is an interposed entity with an SMSF owner

The ATO’s original no action position only applied where the SMSF was the landlord and owned the real estate directly.

Often SMSFs have an interest in an entity that owns the land and leases it to the related party tenant. Although a different structure, many of the same principles apply.

The ATO has now confirmed that its no action position extends to where an entity such as a company or unit trust owns the real estate and leases it to a related party tenant, and the SMSF owns an interest in the company or unit trust.

Documentation required

It is very important that any changes to leases by SMSFs, and the reasons for them, are properly documented.

The ATO now specifically includes this in their no action position, so the appropriate documentation is absolutely vital. The ATO acknowledges this can be ‘with a minute or a renewed lease agreement or other contemporaneous document’.

The documentation SMSFs should have in place includes:

• an outline of why the rent relief is appropriate (with figures)

• a formal amendment to the existing lease terms.

Failure to have the documentation could jeopardise accessing the ATO’s no action position.

Conclusion

It is good to see the ATO taking a practical approach and extending their relief to situations where it is not the SMSF that owns the real estate and include entities in which an SMSF owns an interest.

The ATO is also reinforcing that it is not enough for SMSFs (and interposed entities) to provide rent relief without proper documentation, both as to the changes and the rationale for them.

The specialists at CGW can assist with providing advice on navigating the SIS Act compliance requirement in order for an SMSF to provide rent relief (or other incentives), and assist with properly documenting rent relief arrangements and lease amendments.