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Administration, Compliance

Funds must justify rent relief for tenants

SMSF Rent relief

SMSF trustees must provide commercial justification for any rent relief arrangements with tenants unable to pay rent because of the COVID-19 pandemic.

Trustees allowing temporary rent relief to tenants impacted by the coronavirus must provide clear commercial justification for doing so, an SMSF technical expert has said.

SuperConcepts SMSF technical and strategic solutions executive manager Philip La Greca said funds that owned property with tenants who were unable to pay their rent as a result of COVID-19 would need to ensure any rent relief arrangements were carefully documented.

Whether the agreed-upon arrangement was a rent deferral, rent reduction or rent waiver, a commercial justification for the arrangement, including clear reasoning as to why such an arrangement was in the best interests of the SMSF, must be provided, La Greca noted.

“Any one or any combination of [a rent deferral, rent reduction or rent waiver] is permissible, providing you look at the trustee making a commercial decision around why they’re doing it,” he said during a webinar last week.

“So this is going to be quite critical. Trustees will need to document their decision process as to how they made a determination about what sort of rent relief they are allowing to [their] tenant.

“It becomes very critical if it is a related party because you really need to be able to commercially justify this.”

He pointed out it was essential any rent relief arrangement between the trustee and tenant was initiated by the tenant and this was also included when documenting the decision process behind the arrangement on behalf of the fund.

“What needs to happen here is that the trustee is not the one who says: ‘I’m willing to adjust the rent.’ That has got to be initiated and instigated by the tenant,” he said.

“It’s the tenant who has to be able to come to the trustee and say: ‘I’ve got a problem because of the coronavirus and therefore I need some rent assistance.’”

Trustees considering evicting their tenants for not being able to pay their rent should think twice and take a more long-term view, he added.

“If I evict that tenant, how easy is it going to be for me to replace that tenant? Particularly if it is a commercial property,” he said.

“Am I going to be able to get another business in or is any other business going to have the same problems? [What] is the point of replacing what might have been a good tenant with another tenant who can’t pay the rent either? These are the considerations that you need to document as a trustee.”

Last week, the ATO announced it would not carry out compliance action against any SMSF providing tenants with rent relief or reductions due to the financial effects of the coronavirus pandemic.

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