Trustees who may have misunderstood aspects of the provision of temporary rent relief during the coronavirus pandemic and the ATO’s no-action position on the matter should use the national cabinet’s code of leasing conduct as a starting point to ensure basic requirements of commerciality are met, an SMSF audit specialist says.
Evolv Super chief executive Arthur Favos highlighted the “National Cabinet Mandatory Code of Conduct – Small or Medium-sized Enterprise Commercial Leasing Principles during COVID-19” as an ideal guide for trustees who might have misconceptions regarding the provision of rent relief to tenants financially affected by the coronavirus.
“In relation to what the ATO have said about no action to be taken when an SMSF gives a related-party tenant rent relief because of the effects of COVID-19, I’ve certainly had at least one inquiry from an exasperated accountant [of a fund] where the trustees think [the ATO’s no-action position] gives them carte blanche not to pay any rent until 30 June 2021. That’s certainly not the case,” Favos said during a Heffron webinar yesterday.
“I think the national cabinet mandatory code of conduct for commercial leasing provides a fantastic guideline about negotiating in good faith [and] working towards a mutually satisfactory outcome.”
He pointed out documentation would play a vital role in helping auditors assess the commerciality of any rent relief arrangements between trustees and tenants.
The code would also be a useful tool for trustees formulating their reasons for providing rent relief, he added.
“[The process] needs to be documented. The tenants need to apply in writing in relation to rent relief, outlining their circumstances. Trustees need to complete contemporaneous resolutions in relation to analysing and assessing the application from the tenant and then [give] reasons in the decision-making process, documenting the reasons as to why they’re giving relief. Using the code [to support that decision] is a great example,” he said.
“You’re then [providing] documentation for your auditor to be able to assess why [rent relief was provided] and to make sure it was in relation to COVID-19. If there isn’t sufficient nexus between the rent relief and the impact of COVID-19 on that business, then you have a situation where the auditor may need to take it further.”
Last week, the ATO updated its auditor/actuary contravention report instructions for the 2020 financial year, confirming SMSF auditors would not be required to report a number of breaches that might occur as a result of COVID-19 rent relief measures.
Last month, SuperConcepts SMSF technical and strategic solutions executive manager Philip La Greca said trustees allowing temporary rent relief to tenants impacted by the coronavirus must provide clear commercial justification for doing so.
