Self-managed superannuation funds (SMSFs) and related party rent relief

Wealth Management Insights

Economic relief continues to roll out for those impacted by COVID-19, with the ATO confirming over the weekend that they will not take compliance action for SMSFs that offer rent reductions to related party lessees.

This long-awaited update provides welcome news for SMSFs, who were faced with the difficult position of being able to offer rental relief to unrelated tenants, but potentially facing audit issues for offering the same to their own businesses.


What did the ATO say?

The ATO website has simply confirmed that they will not take any compliance action for the 2020 & 2021 financial years where an SMSF gives a related party tenant a temporary rent reduction.

What rent relief can be offered?

Here is the complication. While the ATO will not take compliance action, SMSF auditors are still required to ensure that trustees comply with a number of rules and regulations, and trustees will need to be careful they can still provide documents for the decisions made.

Depending on the level of impact on the lessee’s business, rental relief might include the following: rent relief

  • A reduction in the fixed rent for 3-6 months 
  • A rent-free period for a fixed amount of time
  • An agreement to pay outgoings only for 3-6 months
  • A combination of the above

Do I need to provide evidence? 

The auditor may ask for support that the business is being significantly impacted by COVID-19.  For retail, tourism and hospitality properties the impact will be fairly obvious. Other businesses, however, including manufacturing and office-based businesses may need to show the auditor why a rent reduction is required. Similarly, any businesses that were in financial distress and were in arrears on their rent prior to COVID-19 would not be eligible for rent relief under this exemption.

What documentation do I need?

All changes to lease arrangements should be properly documented. Some documents that would be suggested may include:

  • A letter to the lessor requesting the rent relief, and explaining why it is needed
  • Minutes of a meeting of the SMSF trustees, to consider the relief requested
  • A letter from the lessor confirming the relief, and the timeframe it will be offered for

Is there anything else to consider?

SMSFs that offer rent relief will need to consider the impact this will have on the liquidity of their Fund, particularly where pensions are being drawn or loans being paid. There is another relief being offered by the government for the minimum pension, and our team of SMSF specialists will be able to guide you through how to manage these matters. 

Contact your local RSM adviser today >>


This article has been prepared by RSM Financial Services Australia Pty Ltd ABN 22 009 176 354, AFS Licence No. 238282.

As everyone's circumstances are different and this article doesn't take into account your personal situation, it is important that you consider the above in light of your financial situation, needs and objectives, and seek financial advice before implementing a strategy.

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