Trustees who granted rent relief to tenants as a result of COVID-19 must factor in the impact of such concessions on their 2020 tax returns, an SMSF technical expert has said.
In a blog post on the AMP Capital website, SuperConcepts technical education executive manager Graeme Colley highlighted the tax implications of COVID-19 relief on SMSFs for the 2020 financial year, including concessions granted to tenants in the form of rent waivers, rent reductions, lease renewals or deferrals of loan repayments for limited recourse borrowing arrangements.
In particular, trustees who had agreed to a rent deferral during the 2020 financial year should remember they could not declare rental income until rent was actually received by their fund, Colley said.
“Any rent paid to the SMSF directly, or to a real estate agent managing the property, should be declared as income at the time it is paid. For example, if the SMSF has an arrangement with the tenants to defer rent until the next financial year, the rent is not included as income until it has been received,” he pointed out.
“Additionally, if the SMSF has taken out tenant or rental insurance that covers for the loss of rent, any payouts are to be included in the fund’s assessable income.”
He also noted SMSFs with property would have continued to incur expenses, such as council rates, water and electricity charges, despite a reduction or deferral of rent. As a result, funds would still be able to claim these ongoing expenses provided they ensured any reduction in rent was determined at arm’s length and had taken current market conditions into consideration.
“In some situations, if the SMSF has a limited recourse loan, the trustees may have made arrangements with the lender to defer the loan repayments. In these situations, the SMSF can claim interest being charged on the loan as a deduction, even if the bank defers the repayments,” he noted.
Last month, SMSF specialist adviser Mark Ellem warned SMSF landlords must consider the consequences a commercial property rent waiver, as a COVID-19 economic relief measure, will have on other retirement savings elements, including contributions, before they agree to grant them.
