Terri Bell and Ellie Wolfenden
Whilst Commercial Landlords have been provided guidance on what they can and cannot do during these uncertain times, there are an estimated 600,000 commercial properties held in self-managed super funds, and many trustees with related party tenants have been left wondering how this affects them and whether they are able to offer rent reductions to those related party tenants.
The ATO has now clarified the situation.
What is a related party tenant?
A related party of your SMSF includes all members of the fund, and their associates, which include:
· Their relatives;
· Their Business partners and their spouses and children;
· Any company controlled or influenced by the member or their associates;
· Any trust the member or their associate’s control.
Employer-sponsors (employers who contribute to the fund for the benefit of a member) and their associates are also ‘related parties’.
If a tenant of a property owned by a SMSF is a related party to a member of the fund, then particular rules need to be followed, including that any rent paid by the tenant is at least market value.
Can Self-Managed Super Fund (SMSF) Landlords offer Rent Reductions to Related Party Tenants due to COVID-19?
In short, yes. While ordinarily setting a rental figure for a related party tenant below market value would be a contravention, the ATO has outlined that, in light of COVID-19 it will not take action if a SMSF Landlord gives related party tenants a temporary rent reduction or waiver during the 2019-2020 and 2020-2021 financial years.
Any temporary changes to the terms of a lease should be documented, and documentation should clearly set out the reasons for any rent relief. Such documentation should also include evidence of the impact on COVID-19 on the tenant’s income and/or business.
If you have been stuck overseas due to COVID-19, will this affect concessional tax treatment for your SMSF?
Ordinarily there are residency requirements for trustees of a SMSF or directors of its corporate trustee. Due to the travel bans and uncertainty regarding international travel due to COVID-19, the ATO has outlined that, where individual trustees or directors are stranded overseas due to COVID-19, in absence of other changes to the SMSF, the ATO ‘will not apply compliance resources to determine whether the SMSF meets the relevant residency conditions.’
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