As a result of the financial effects of the COVID-19 pandemic, some self-managed superannuation funds (‘SMSFs’) which own real property may want to give a tenant – who is a related party – a reduction in rent because the related party tenant has had a collapse in revenue.
Charging a related party a price that is less than market value is usually a contravention of the strict legislative rules SMSFs and their trustees are required to follow.
The ATO has recently advised that its approach for the 2019–20 and 2020–21 financial years is that it will not take action if an SMSF gives a tenant – even one who is also a related party – a temporary rent reduction, waiver or deferral because of the financial effects of COVID-19 during this period.
If there are temporary changes to the terms of the lease agreement in response to COVID-19, it is important that the parties to the agreement document the changes and the reasons for the change. You can do this with a minute or a renewed lease agreement or other contemporaneous document.
Note: Please contact our office if you have an SMSF that could be impacted by a lease with a tenant, where the tenant cannot afford to pay some or all of its rent because of the economic consequences of COVID-19.