The ATO has announced it will not carry out compliance action against any SMSF providing tenants with rent relief or reductions due to the financial effects of the coronavirus pandemic.
In an update on its website, the regulator said: “Some landlords are giving their tenants a reduction in or waiver of rent because of the financial impacts of the COVID-19 and we understand that [SMSFs] 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.”
SMSF administration and software service supplier SuperConcepts welcomed the announcement from the ATO and noted the new measure would provide relief for SMSFs caught up in the current economic uncertainty.
“The impacts of COVID-19 have hit small business particularly hard to the point where the related party can no longer afford to pay their rent,” SuperConcepts technical education services general manager Peter Burgess said.
“Whereas other small business owners are getting a form of rent relief from landlords, for an SMSF to charge a related party any rental price that is less than market value is usually a contravention that would incur penalties.
“SuperConcepts fully supports this relief measure, which provides certainty and much needed relief for a growing number of SMSFs that own a business premise and have been caught in the economic turmoil caused by the COVID-19.”
Cooper Grace Ward partner Clinton Jackson congratulated the ATO for implementing the measure and urged SMSFs to ensure the rent relief concession granted by the regulator was not misused.
“SMSF landlords should provide rent reduction to tenants who are suffering the effects of the COVID-19 crisis. This rent reduction should be reasonable and measured to the COVID-19 impact suffered by the tenant. Best practice is that it is consistent with the approach taken by arm’s-length landlords,” Jackson said in a blog post on the Cooper Grace Ward website.
In addition, he pointed out a rent reduction agreed to by an SMSF would be an amendment to the lease terms and should be properly documented.
Also voicing his support for the ATO’s decision, Smarter SMSF chief executive Aaron Dunn said the move would alleviate compliance concerns for SMSFs with tenants unable to pay rent.
“It is great news to see the ATO offer relief for trustees that want to provide their related party a rental abatement for a period of time,” Dunn said in a blog post on the Smarter SMSF website.
Last week, the Actuaries Institute called for the ATO to become more actively involved in the relief measure allowing individuals early access to their superannuation to alleviate financial stress caused by the coronavirus.