SMSF information regarding tenancies in your property & COVID-19

SMSF information regarding tenancies in your property & COVID-19

The economic impacts of the COVID-19 crisis are causing significant financial distress for many businesses and individuals.

If your SMSF has a property and a tenant in financial distress, you may be able to provide your tenant with rental relief under an agreed commercial arrangement. This may even be the case when the tenant is a related party or yourself.

Ordinarily, charging a tenant a price that is less than market value in an SMSF is usually a breach of superannuation laws. However, the ATO have provided guidance which allows SMSF landlords to provide for a reduction in or waiver of rent because of the financial impacts of the COVID-19.

For the 2019–20 and 2020–21 financial years, the ATO will not take action where an SMSF gives a tenant – who may also be a related party – a temporary rent reduction during this period.

What do you need to do?

There are some important things you should ensure are in place when you are providing a rent reduction to a tenant, especially when this is a related party.

  • Ensure the relief only applies to rent.
    • Any relief offered to a tenant can only relate to the rent component of the lease agreement. The ATO concession does not extend to other lease incentives.
  • Ensure that the reduction in rent is only temporary.
    • This means it should have an agreed period of time or agreed date where the rent is reviewed in light of the economic circumstances.
  • The financial difficulty faced by the tenant is linked to the financial impacts of COVID-19.
    • Any negotiated rent relief will need to be measured against the COVID-19 financial impact suffered by your tenant.
  • Clear arrangements which detail the amount of discount, waiver or deferral of the rent.
    • In evidencing that the rent relief is reasonable, it would be best practice if it is consistent with an approach taken by an arm’s length landlord.
  • Ensure you have proper documentation which allows your independent auditor to be satisfied that the temporary rent relief satisfies all of the above.
    • This may take the form of a signed minute, renewed lease agreement or anything deemed appropriate to amend the terms of the lease temporarily.
    • Even if you are both the tenant and landlord, the above should all be documented.

These are extraordinary times and the ATO is providing this guidance to allow SMSF trustees to be flexible and agile.

If trustees act in good faith in implementing a reasonable and measured reduction in rent because of the impacts of COVID-19 they should not fall foul of the law.

How can we help?

If you need assistance providing rental relief or whether this is the right action for you and your specific circumstances, please feel free to give us a call 02 9415 1511, and we can discuss in further detail.

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New working from home tax rate.

New working from home tax rate.

On 7th April 2020, the Australian Taxation Office (ATO) announced special arrangements this year, due to COVID-19, to make it easier for people to claim deductions for working from home. The new arrangement will allow people to claim an increased rate of 80 cents per hour for all their running expenses incurred during the period 1 March 2020 to 30 September 2020, including;

  • Electricity expenses associated with heating, cooling and lighting the area at home which is being used for work.
  • Cleaning costs for a dedicated work area.
  • Phone and internet expenses.
  • Computer consumables (e.g., printer paper and ink) and stationery.
  • Depreciation of home office furniture and furnishings (e.g., an office desk and a chair).
  • Depreciation of home office equipment (e.g., a computer and a printer).

Multiple people living in the same house can claim this new rate. For example, a couple living together could each individually claim the 80 cents per hour rate. The requirement to have a dedicated work from home area has also been removed and now you will only be required to keep a record of the number of hours worked from home. The new rate does not prohibit people from making a working from home claim under existing arrangements, where you calculate all or part of your running expenses. Claims for working from home expenses prior to 1 March 2020 cannot be calculated using the new rate, and must use the pre-existing working from home approach and requirements, more from the ATO.

As always, please don’t hesitate to contact the team 02 9415 1511 or email us reception@primeadvisory.com.au to see how this may apply to you.

For a more detailed explanation on what you can (and can’t) claim on tax if you’re working from home click here.

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Commercial leasing code of conduct.

Commercial leasing code of conduct.

On 7 April 2020, the National Cabinet announced a mandatory code of conduct the ‘Commercial Tenancies Code’, to be legislated and regulated by each of the State and Territory Governments. Please see link below for the release document.

Click here for the Commercial Tenancies Code

The Commercial Tenancies Code is intended to mandate a set of good faith principles to be applied to commercial, retail and industrial leases where the tenant is eligible for the Commonwealth Government’s JobKeeper assistance and is a small or medium sized enterprise (with an annual turnover of up to $50 million).

The objective of the Commercial Tenancies Code is for a landlord and tenant to share the risk and financial impact during the COVID-19 crisis, whilst seeking to balance the interests of the landlord and tenant. It is expected that a landlord and each eligible tenant will negotiate in good faith, on a case by case basis.

The following leasing principles should be applied in negotiating and enacting appropriate temporary arrangements between a landlord and tenant under Commercial Tenancies Code. These apply during the COVID-19 crisis and for a reasonable recovery period:

  1. A landlord must not terminate a lease for non-payment of rent;
  2. A landlord must not claim on upon a tenant’s security (bank guarantee, security deposit or personal guarantee) for non-payment of rent;
  3. A landlord must freeze rent increases. This includes fixed and market reviews;
  4. A landlord must not impose any penalties or prohibition against the tenant reducing its opening hours or ceasing to trade;
  5. A landlord must offer the tenant a rent reduction proportionate to the trading reduction in the tenant’s business over the course of the COVID-19 crisis, through a combination of waivers of rent and deferrals of rent (Rent Relief);
  6. Waivers of rent must account for at least 50% of the Rent Relief;
  7. Deferrals of rent must be covered over the balance of the lease term and in a period not less than 24 months following the COVID-29 crisis;
  8. A landlord must not charge any fees, interest or other charges to the tenant with respect to waivers and deferrals of rent;
  9. A landlord must pass on to the tenant (with appropriate proportionality as applicable under the terms of the lease) any reductions in statutory charges, such as land tax, council rates and insurance. This will be seen through a reduction in outgoings costs;
  10. A tenant must honour the terms of the lease, as amended in accordance with negotiations under the Commercial Tenancies Code. If the tenant breaches the substantive terms of the lease in a material way, the tenant will forfeit any protection provided to the tenant under the Commercial Tenancies Code;
  11. A tenant should be provided with an opportunity to extend its lease for the equivalent period of the waiver or deferral period. This is intended to provide the tenant with additional time to trade on the existing lease terms during the period after the COVID-19 crisis;
  12. If negotiated arrangements under the Commercial Tenancies Code involve repayment by the tenant, this should occur over an extended period to avoid placing an undue burden on the tenant;
  13. This Code is effective April 3rd, 2020 until such time as the Job Keeper Program is concluded.

If a landlord and tenant cannot reach an agreed position on alternative leasing arrangements as a direct result of COVID-19, the matter should be referred to a binding mediation process overseen by the relevant State or Territory Government.

As always, we are here to help so please reach out if you have any questions 02 9415 1511 or email reception@primeadvisory.com.au.

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Newfound success in retirement.

Newfound success in retirement.

This month we introduce Lynne Pressley to our On Track for Life Wall. Next time you are in the office make sure you check out the photos.  Lynne has been a client of Mark Greenwood’s for about 30 years and has recently retired and loving it!

During her working life Lynne was a highly respected Interventional Cardiologist who worked very long hours while also raising a family and so had very little time to devote to her personal financial affairs. Over the years Mark has worked alongside Lynne to ensure that she was making smart financial decisions and positioning herself for financial independence, when she eventually decided to stop working.

Now that Lynne has decided to retire, she is enjoying the freedom that she never had whilst working. She now spends time in the garden at their property in the Blue Mountains and pursuing her other goals. Lynne has taken up golf and now plays of a handicap of 18, which is no mean feat and something Mark is very envious about. She has recently moved house and is enjoying having time to furnish and decorate it.

Lynne’s family is growing, and she is now a grandmother, with a little more time on her hands to spend with the children and grandchildren. The relationship with Mark has worked very well over the years and now moves into another phase of her life. The structure of accountability throughout her busy working life has allowed for a happy and successful transition into retirement.

The staff at Prime Advisory would like to congratulate Lynne on her recent achievements and welcome her, very deservingly, to the On Track for Life Wall!

Want your photo up there too? Get in touch with your Advisor and share your wins and you could be next! Contact us on 02 9415 1511.

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A message from MBS insurance regarding the impact of COVID-19.

A message from MBS insurance regarding the impact of COVID-19.

“We have received some enquiries from our clients around the impact of Coronavirus. There are no exclusions to Life Insurance, TPD, Trauma or Income Protection that would prevent payment of a claim related to a Coronavirus for existing retail insurance policy holders.

We have seen and received announcements confirming this for policy holders of AMP, MLC, BT, AIA, CommInsure, OnePath, Zurich, Clearview, TAL and Asteron. Nick Kirwan, Senior Policy Manager at the Financial Services Council stated on the FSC website that no-one should be concerned about their existing life insurance policies.

We are aware of some Industry or Corporate Super Fund policies that do exclude pandemics and/or epidemics. If you or a family member have one of these policies, please reach out to your Adviser.

As is always the case, we are driven to provide protection at a time of need and deliver better outcomes for our clients. If you experience any downtime, it may be the ideal opportunity to have your insurance portfolio reviewed.  If you wish to speak with your Adviser, it will be more efficient to email them directly or at enquiries@mbsinsurance.com.au.

Our team has been set up to work from home, so the business will continue as usual however limited staff members will be answering phones.”

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