Rent Relief COVID-19
To ensure compliance with ATO guidance, you must properly document any COVID-19 Relief given by an SMSF. Use Cleardocs to properly document COVID-19 rent relief given by a landlord who is the Trustee of the SMSF to its related party Tenant.
Non-SMSFs - Commercial lease agreements
Use Cleardocs to vary and properly record your commercial lease agreement where the Landlord allows the Tenant COVID-19 rent relief.
Time taken to complete 15 minutes.
Cost $ 187.00 (inc GST)
Printing Optional printing, binding and delivery for $ 66.00
Legal Sign-offThe master documents are written in plain language and are signed-off by our lawyers at Maddocks.
Can your SMSF's lease to a related party grant COVID-19 relief and should it be documented?
If an SMSF has entered into a commercial lease with a related party, and the tenant is experiencing hardship with its repayments as a result of COVID-19, then the SMSF landlord may grant the tenant COVID-19 relief from repayments.
Ordinarily, agreeing rent other than on at arm's length terms to a related party tenant would breach super law - however, for the purposes of COVID-19 relief, it does not. The arrangement needs to be documented for it to be compliant with super law.
Is an SMSF generally allowed to offer rent relief to a related party tenant? No.
Ordinarily, super law prohibits an SMSF from offering rent that does not reflect arm's length terms, where the tenant is a related party. Rent will not be at arm's length if the SMSF, for example, sets the rent at below market rates or provides rent relief or a discount to such a tenant. Accordingly, an SMSF that provides rent relief to a related party tenant ordinarily risks breaching a number of compliance provisions, including the following:
- Sole purpose test - offering rent relief to a related party tenant may be viewed as pursuing a separate purpose of assisting the tenant rather than the sole purpose of providing retirement benefits to the SMSF's members. This may result in the 'sole purpose test' being contravened.
- Financial assistance - offering rent relief to a related party tenant may be viewed as providing a financial benefit to a member or a member's relative in a personal capacity (be it directly or indirectly) as opposed to benefiting the SMSF and its members in their capacity as members of the SMSF. This may result in the SMSF financially assisting that member or member's relative which is prohibited by super law.
- Arm's length dealing - offering rent relief to a related party tenant may contravene the prohibition against non-arm's length dealings as it could be difficult for the SMSF to establish that it is dealing with the related party tenant in the same way that it would otherwise deal with a tenant that is unrelated to the SMSF.
Is an SMSF allowed to offer rent relief to a related party tenant in response to COVID-19? Yes.
Notwithstanding the general position described above, the ATO has recently acknowledged the hardship that tenants, including tenants that are related parties of an SMSF, may be facing as a result of the COVID-19 pandemic.
In particular, the ATO has stated on its website here that its compliance 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 a related party - a temporary rent reduction, waiver or deferral because of the financial effects of COVID-19 during this period.
Each State / Territory has enacted legislation which governs a tenant's eligibility for COVID-19 rent relief and each State / Territory has slightly different requirements governing eligibility. The principal requirements in most States / Territories are that:
- the lease is for retail, commercial or industrial purposes (agricultural or pastoral leases are generally not covered, and residential leases are in most cases covered by a separate regime);
- the tenant is a participant in the JobKeeper scheme; and
- the tenant has an annual turnover of less than $50 million.
The specific legislative provisions in each State / Territory will need to be considered if there is any doubt as to whether the statutory entitlement to claim rent relief applies to a particular tenancy.
An SMSF may seek to offer rent relief to a related party tenant if, for example, the related party tenant operates a business from the leased premises and the business has:
- had to temporarily close as a result of the impacts of COVID-19; or
- seen a substantial reduction in its revenue as a result of the various governmental restrictions imposed in response to COVID-19.
How should an SMSF document rent relief offered to a related party tenant in response to COVID-19?
If an SMSF seeks to offer rent relief to a related party tenant, it must ensure that the rent relief is:
- temporary in nature;
- directly in response to the financial impact of COVID-19 on its related party tenant; and
- adequately documented.
The ATO has stated, on its website here that:
- if temporary changes are made to the terms of a lease agreement in response to COVID-19, the parties to the lease agreement must document the change and the reasons for the change; and
- this may be done by way of minutes or a renewed lease agreement or other contemporaneous document.
To assist with the documentation process, Cleardocs has developed a new product - Cleardocs Rent Relief (COVID-19).
Can Cleardocs assist with the required documentation? Yes.
Cleardocs Rent Relief (COVID-19) has been developed in response to COVID-19 and the ATO's statements in relation to the ability of an SMSF to grant temporary rent relief to related party tenants impacted by COVID-19.
Cleardocs Rent Relief (COVID-19) provides an SMSF with the required documentation which the SMSF will need in order to continue to comply with super law, if the SMSF intends to provide COVID-19 rent relief to a related party commercial tenant.
The 'rent relief' offered by the product includes:
- deferral or a partial waiver of outgoings;
- deferral, partial waiver or full waiver of rental payments; and/or
- an extension of the lease term if a deferral of rent is being provided.
What if the SMSF is already giving COVID-19 relief?
In order to comply with super law, your SMSF must document the arrangement no matter when the arrangement began. The Cleardocs Rent Relief (COVID-19) product allows an effective date to be entered and the document to be signed at a later date thereby assisting you to document the arrangement even after it has been entered into between the SMSF and tenant.
Questions or further information
If you have questions:
- about how to use Cleardocs, contact the Cleardocs helpline on 1300 307 343.
- about legal issues, contact the Cleardocs helpline on 1300 307 343. If you need advice, we will arrange for you to speak with a lawyer at Maddocks. The firm provides a free legal helpline in relation to the documents Cleardocs provides. If you require other legal advice in relation to your particular circumstances, then this will be charged for.