In particular, she said to beware the spectre of non-arm’s length dealing for these entities.

“If the lease agreement is not legally enforceable or if rent accrues to create a borrowing in the non-geared entity, this will compromise the entity’s status,” Ms Kewley said.

“Where an SMSF holds business real property via a non-geared entity subject to Div 13.3A in Superannuation Industry (Supervision) Regulations 1994, the requirement for arm’s-length dealing in related tenancies is paramount.”

Ms Kewley referred to the ATO statement that the deferral of rent for commercial tenancies within a non-geared trust or company due to the impact of COVID-19 will not cause these investments to be treated as in-house assets.

However, she said it is uncertain whether a waiver of rent enjoys the same immunity. But the standard of arm’s-length dealing has changed as a result of COVID-19 and non-geared entities are not exempt.

“Based on the information available, the above principles will apply equally within a Reg 13.22C environment. Given the high stakes of non-compliance, a legal review of the lease and any amendments is recommended,” Ms Kewley said.

SuperConcepts executive manager for SMSF technical and private wealth Graeme Colley said the benefit of 13.22C companies or unit trusts is that investments such as commercial property are exempt from the in-house asset rules.

“This is on the basis that it continually complies with SIS regulation 13.22C and doesn’t fail any of the rules at any time which are in regulation 13.22D. If there is a breach, the fund’s investment in the company or unit trust will be included in the fund’s in-house assets which are limited to no more than 5 per cent of the fund’s total assets,” Mr Colley said.

“The financial effect of the COVID-19 pandemic applies equally to SMSFs owning property directly and those SMSFs owning indirectly via a 13.22C unit trust.

“It would be appreciated if clarification could be provided whether any temporary rent reduction would result in the fund’s investment being treated as an in-house asset of the SMSF rather than remaining exempt.”