The ATO has revealed it is very close to releasing a legislative instrument determination to address the issue of rent relief deferrals granted by SMSF landlords to related-party tenants in response to coronavirus-related financial hardship and how these arrangements will be considered from an in-house assets perspective.
“With rental deferrals there is that additional complication of potentially being seen as loans because there is going to be a repayment. [But] we’re not far off now from getting that legislative instrument [dealing with this issue] actually registered,” ATO risk and strategy director Kellie Grant said during a question and answer session at the 2020 Self-managed Independent Superannuation Funds Association SMSF Virtual Forum yesterday.
“I’d say it will probably be in the next few weeks actually so that the in-house asset issue that arises in a rental deferral situation is going to be excluded from the in-house asset rules.”
The legislative instrument determination has been drafted to alleviate the burden on auditors of having to qualify the audit report for rental deferrals SMSF landlords have granted to related-party tenants due to the possibility the arrangement has resulted in the fund having an in-house asset, Grant noted.
Further, she confirmed the legislative instrument determination would only cover rent deferrals.
“Waivers and reductions aren’t covered by that legislative instrument because effectively the parties are agreeing that there will be no repayments so there is no in-house asset in the fund, but they still have to be provided on arm’s-length terms,” she noted.
According to Grant, the determination will only apply to the 2020 and 2021 financial years.
“[This is because] we hope no one will be feeling the future impacts of COVID beyond 1 July 2021. But of course we will be monitoring the situation … and if we need to extend the [legislative instrument] or we need to extend our current compliance approach to not take any action in relation to those sorts of breaches, which are currently reflected in the ACR (auditor contravention report) addendum instructions, we will do so,” she confirmed.
During the same session, she told delegates there has been a spike in asset valuation issues being included in ACRs.