In the usual course of business, you would need to operate your business in a commercial location and pay rent to the landlord as per the terms found in your lease agreement.
But what about if your SMSF owns the property and you are running your business in that property.
Are you allowed to give yourself rent relief if your business is experiencing a downturn because of COVID-19?
Usually, the answer is no. You're not allowed. But -
These times are certainly anything BUT normal.
In recognition of this, the Australian Taxation Office (ATO), have signalled that during this current 2020 financial year and the next (2021) financial year, they will NOT take up any compliance action on an SMSF that has allowed it's tenant some temporary relief from making rental payments.
This. Is. Huge.
But before we go out and start cancelling our rental arrangements for property held in our SMSF, let's pause and think about a few matters;
1. Check and make sure your current lease agreement document allows for negotiations between the landlord and tenant over the amount of rent that is payable. Because even though the ATO have said they wont take up compliance action, your SMSF still needs to have a complying arrangement in place and that includes a valid/enforceable lease agreement
2. Your SMSF will likely still be incurring expenses. Does it have the cashflow to support these expenses? Let's be honest, if your business can afford the rent, then you should probably continue as normal so to ensure your SMSF has the available cash in the event it needs to make any expense payments. Plus, your business can still claim the tax deduction for rent payments.
3. Your SMSF still needs to comply with all the OTHER rules and regulations that still exist. Rental relief is not permission to go ahead and breach those rules. For example, the 'sole purpose test' is an overarching rule that generally says superannuation is for you to benefit in retirement. Don't catch yourself out by providing rent relief for longer than is required, and then find that your SMSF auditor is asking for proof that you have not gone too far. If that is the case, you're stepping dangerously close to another rule that your SMSF is not to provide you with personal 'financial assistance'.
4. If you do go ahead with providing yourself rental relief, it would be very wise to create a minutes of meeting at the time you make that decision. At the very least you should note the details of the property, the tenant renting that property, and the reason/s for providing rental relief.
There's plenty more to discuss on this matter and if the ATO provide any new information we'll be adding more details to our website. In the meantime, if you have any questions on this feel free to contact us via the contact details found on our website.
