The ATO may not be policing SMSF trustees who are providing tenants with rental relief, but there are still a number of things landlords need to do.
SuperCentral special counsel Maria Siu has said that while the Australian Tax Office (ATO) has stated that it will not take action if an SMSF gives a tenant a temporary rent reduction, wavier or deferral, even when they are a related party to the fund, it is not in the form of a binding agreement.
Despite the ATO stance, there has been no formal change in the relevant requirements in the Superannuation Industry (Supervision) Act 1993 or in the Superannuation Industry (Supervision) Regulations 1994 regarding compliance.
Among other things, Ms Siu has still flagged that SMSFs must remember that “ensuring temporary rent relief is on arm’s length commercial terms between the SMSF and the tenant is fundamental to superannuation compliance”.
She’s written a practical checklist for SMSFs to ensure they are still complying with relevant legislation, with the key takeaways listed below:
1. Collate and review the leading documentation and check the type and/or the terms of the existing lease
2. Check all relevant leasing laws that are applicable to the fund’s lease
According to Ms Siu, it’s advisable to check with the fund’s leasing lawyer of the applicable leasing laws.
3. Check whether rent relief negotiation is required by law
Make sure the negotiation is appropriate and in the financial interest of the fund given the current COVID-19 situation.
4. Initiate rent relief negotiation
This is where you can request sufficient and accurate information about the financial stress suffered by the tenant as a result of COVID-19.
You should take into account any government support payments the tenant is currently receiving, either directly or as passed on to the tenant from the landlord (such as land tax relief).
5. Conduct due diligence
Make comparisons using comparable market to determine the structure and/or the amount of rent relief that is commensurate with the tenant’s current situation and financial stress.
This will be determined on a case-by-case basis, with Ms Siu flagging that there’s no set structure/amount/percentage to broadly suit all circumstances.
6. Implement rent reduction
This should be done in accordance with the lease agreement.
It’s advisable to formally implement the change with the fund’s leasing lawyer.
7. Document all aspects of the trustee’s decision in relation to the rent relief
This should include: