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Superannuation, Tax

Retaining rent charge not NALI

SMSF rent NALI

An SMSF landlord that does not reduce a tenant’s existing rent expenses will not trigger a breach of the non-arm’s-length income (NALI) rules.

A leading sector auditor believes a situation where an SMSF does not grant a rent reduction for a property it holds, under the COVID-19 economic relief measure, will not cause the fund to be considered to have breached the non-arm’s-length income (NALI) rules.

Speaking during the latest SMSF Association COVID-19-related webinar, ASF Audits head of technical Shelley Banton said: “There are no issues [with this course of action] because [the granting of rent relief] needs to be an agreement between the tenant and the landlord.

“So if there is no agreement, and the rent just continues as it is, there is no requirement that you have to provide rent relief and that rent relief has to be sought.”

Fellow webinar presenter Heffron head of SMSF technical and education services Lyn Formica said there potentially would not be a NALI issue if there was strong evidence for the SMSF landlord’s decision to keep the rent expenses for the tenant unchanged.

Formica shared a recent client scenario she witnessed to illustrate this view.

“We had a scenario the other day where we had a tenant that did in fact qualify for JobKeeper, but they’d had actually a fantastic nine months [of trading] prior to that. They had plenty of financial resources to continue to pay the rent,” she said.

“[The SMSF involved] was paying pensions and needed the [full amount of] rent to be paid. So in that particular situation it looked to us [like] we wouldn’t end up with a non-arm’s-length income situation if in fact rent relief was not asked for and not granted.

“Essentially there didn’t seem to be any need on the part of the tenant to get relief. Certainly we had a trustee who was essentially going to have liquidity issues if rent wasn’t being paid.”

She acknowledged this type of situation was a “grey area” and called on the ATO for some further assistance.

“I think we probably perhaps at some stage are going to need some clarification around the non-arm’s-length income side of things,” she noted.

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