The ATO has revealed it is in the process of legally formalising its compliance approach to SMSF landlords providing rent reductions, waivers or deferrals for tenants, including related parties, as a COVID-19 economic relief measure.
“We’re in the process of releasing a legislative instrument giving certainty about [rent relief] going forward,” ATO SMSF segment deputy commissioner Steven Keating told delegates an industry summit held this week.
“We’re looking to release it pretty soon. I’ve just been working through that document so I expect it’s going to come out very shortly.”
The regulator communicated its initial compliance approach to SMSF landlords providing rent relief on its website in March.
Keating took the opportunity to emphasise the importance of having proper documentation in these situations and indicated what the ATO was specifically looking for.
“[The SMSF landlord] certainly needs to make sure the lease agreement reflects the changes and they have documented the rationale for their decision-making,” he said.
“[They can make that available] to the SMSF auditor who may look at it and want to review the arrangements when they do the SMSF audit at the end of the year.”
Limited recourse borrowing arrangements are often associated with properties held inside an SMSF and as such Keating also detailed what is required from a compliance perspective if loan relief, particularly when related parties are involved, is also granted.
“If the relief has been negotiated as a result of COVID-19, it must have similar terms to a commercial bank,” he said.
“We’ve seen things like a temporary deferral for most businesses of up to six months or the unpaid interest is capitalised.
“So as long as those arrangements comply with what is out in the normal commercial arena, we won’t consider that NALI (non-arm’s-length income) is applicable, particularly if they’ve documented the reasons for why they have provided that relief.”