Guidance on SMSF Landlords providing temporary COVID-19 rent relief to tenants (Both related party tenants and arms length tenants)

Many landlords are being approached by tenants in financial distress due to the impacts of COVID-19. SMSFs who own property are not immune from these requests.

Often SMSFs are setup to acquire business property which is then leased back to the family business on commercial terms. This means that the family business may need to seek rental relief as a tenant from the family SMSF as landlord.

The ATO has sought to allay concerns from SMSF trustees around whether charging a tenant rent that is less than market value contravenes the SIS Act (the act that governs operation of SMSFs), and whether it would take action given the impacts of COVID-19.

This is what the ATO has to say to SMSF trustees;

“Some landlords are giving their tenants a reduction in or waiver of rent because of the financial impacts of COVID-19 and we understand that you may wish to do so as well.

“Our compliance approach for the 2019–20 and 2020–21 financial years is that we will not take action where an SMSF gives a tenant — who is also a related party — a temporary rent reduction during this period.”

This makes a lot of sense and is a welcome confirmation.

Points to consider for SMSF Landlords;

  • The ATO’s position is that there is no need for the rent reduction provided to be justified by market evidence, rather, the SMSF can determine the reduction in its absolute discretion.
  • Any rent reduction should be reasonable and measured to the COVID-19 impact suffered by the tenant. Any reductions should be considered and applied as if the tenant was not a related party.
  • It is essential that the reduction be ‘temporary’.
  • Any rent reduction agreed to by the SMSF should be properly documented, as this is an amendment to the lease terms.
    • There should be a request from the business to the SMSF for a rent reduction.
    • The SMSF trustees should consider this and then document a decision to reduce the rent by X and then communicate this back to the business.
    • There is no need for lawyers to prepare this documentation, but that

The above guidance applies to both related party tenants and arms length tenants.

If you are an SMSF trustee with a commercial property then you need to speak to speak to your advisor to ensure the appropriate documentation is in place should your auditor or the ATO ever ask for it in the future.