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Terese Gerges

Apr 21, 2023

in SMSF Technical Forum

Hi, I have a SMSF who owns a commercial property leased to a related party. A lease agreement was was signed in 2019 for a five year term. A rental appraisal was obtained at the time of drawing up the lease agreement. The lease agreement also states a CPI rent review each year.

During the 2022 financial year audit, independent evidence is obtained to show the market rate of rent is now considerably higher than the CPI increase that has been applied. The rent is still being paid to the superfund according the the lease agreement + CPI increase. Has the fund contravened s109 of the SIS Act if rent is only being paid according to the contractual agreement - being the Lease Agreement that was signed in 2019? Or have they contravened s109 as rent is not currently paid at market terms?

1 comment

Comments (1)

THE AUDITORS INSTITUTE

Apr 21, 2023

Hi Terese

My view is that if rent is being paid as per the lease agreement there is no breach of section 109 of SIS in relation to the arm's length requirement.

This is on the basis that when the lease was prepared originally it was on an arm's length basis at that date.

The fact that the market has changed and that the rent value has increased is only relevant when a new lease agreement is prepared (after the current lease expires).

Thanks

SMSF AAA

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Lease Agreement to a Related Party - Commercial