The Australian Taxation Office (ATO) has heightened its focus on related party leases and has adopted a stricter approach in the way it applies the sole purpose test and section 109.

Trustees of self-managed superannuation funds (SMSFs) that own commercial property and lease this property to related parties need to ensure that the lease arrangements are on arm’s length terms and conditions. In other words, the lease arrangements must be the same as they would be if the parties were not related.

Trustees need to ensure lease arrangements are commercial in relation to the amount and regularity of rent paid and whether debt recovery has been actioned appropriately.

SMSFs are typically not permitted to lease real property to related parties unless that property is used “wholly and exclusively” in a business which simply means personal use of the property is prohibited.

The above acts as a timely catalyst to review your related party lease arrangements and ensure they are compliant. If we can assist you in this regard, please contact our SMSF advisory team on (07) 3391 5055 or via smsfadmin@mgdwealth.com.au.

Any advice included in this communication is general and has been prepared without taking into account your objectives, financial situation or needs. As such, you should consider its appropriateness having regard to these factors before acting on it. Any tax information refers to current laws, is not based on your unique circumstances and should not be relied on as tax advice. Before you make any decision about whether to acquire a certain financial product, you should obtain and read the relevant product disclosure statement.