Since March 2020 the Government and the SMSF Regulator (ATO) have made numerous announcements and have constantly provided updates on matters that have impacted SMSFs and SMSF members.
SuperGuardian have kept on top of these changes, providing regular updates to our Adviser and Trustee network, and will continue to do so as appropriate.
As a result of all these updates, and in some instances regulatory changes, we have created this resource page as a central location for all COVID-19 related material.
For a specific subject matter please click on the appropriate heading below. Should you have any questions please do not hesitate to contact us via email@example.com
Last updated 17th September 2020
In 22 March 2020 the Government announced significant relief measures that will impact many SMSF members during 2019/20 and 2020/21, and potentially beyond. Here is a summary of the key announcements directly linked to superannuation pensions:
50% reduction in minimum pension drawdowns
The minimum pension requirements for the 2019/20 and 2020/21 Financial Years have been reduced by 50%.
The relief applies to all Account Based Pensions including Transition to Retirement Income Streams (TRIS).
Calculating the annual pension is done as follows:
Account balance x percentage factor = annual pension requirement (rounded to nearest $10)
The relief does not reduce the maximum allowable under a TRIS, it is largely a means to assist in the preservation of capital.
Market Linked Pensions
Market Linked (Term Allocated) Pensions also have 50% relief. The calculation of these pensions is slightly different to above as Trustees are required to calculate an amount in accordance with the Regulations and then the member can elect to pay any amount within 10% of that amount.
Here is how the calculation will work:
Normal Market Linked Pension Calculation applies
AB / PF where AB = Account Balance and PF = Payment Factor (SIS Regulation Sch 6)
This amount is rounded to nearest $10
Minimum = 45% of the rounded amount (usually 90%)
Maximum = 110% of the rounded amount
Excess Pension Payments
If, due to the timing of the announcement, a member took more than the 50% reduced minimum (during 2019/20 Financial Year) the amount cannot simply be returned to the fund, any such amount would be considered a contribution and be subject to the existing contribution rules.
Contribution eligibility is based on a member’s age and account balance at the preceding 30 June.
Member’s and Trustees need to be aware about two particular scenarios that might arise when considering contributing excess pension payments back to their fund.
2019/20 Excess contributions (under 65 or satisfy the work test) – if an individual had a total superannuation balance of $1.6m or more at 30 June 2019 then their non-concessional contributions cap for 2019/20 was NIL ($0) and as such if they contribute they will be subject to the excess contribution rules and are likely to pay tax on associated earnings.
2019/20 Ineligible contributions (members over 65 don’t satisfy the work test) – if the member does not meet the requirement to contribute then the contribution needs to be returned within 30 days of being made aware of the error (date of contribution for SMSFs). If outside 30 days then the amount still needs to be returned but may be subject to an Audit Contravention Report (ACR) based on the amount i.e. if the amount is more than $30,000 then ACR will be required.
2020/21 – from 1 July 2020 the age where a member needs to meet the work test to contribute increased from 65 to 67.
If you need any assistance with the contribution rules please contact us.
Reduction in Social Security deeming rates
From 1 May 2020 the upper deeming rate for Social Security purposes is 2.25% and the lower rate is 0.25%. This announcement does not necessarily require any action, however, it may result in changes to Age Pension limits for some clients. Please contact your local Services Australia branch to access more information, or subsequently visit https://www.servicesaustralia.gov.au/ for more information.
ATO frequently asked questions
The ATO have answered a number of questions, some of which are regularly asked of us at SuperGuardian. Below is the most common question received:
Question: I am retired and receive an account-based pension from my SMSF. My account-based pension has already paid me more than the reduced minimum annual payment required for the 2019–20 financial year. Is the amount over the minimum considered superannuation lump sum amounts?
Answer: Pension payments that you have already received cannot be re-categorised. Accordingly, payments made from your account-based pension in excess of the new reduced minimum annual payment required for the 2019–20 financial year are pension payments (that is, superannuation income stream benefits) for the year and not superannuation lump sums.
SuperGuardian Commentary: Identifying excess pension payments as lump sum commutations or withdrawals from an accumulation interest is a prospective action. As such now is the time to start preparing for 2020/21 withdrawals for clients who normally draw more than the minimum OR those clients who are unlikely to want to change their regular drawings. If clients wish to reclassify payments as lump sums that is not a problem if it is done before the amount is drawn.
It should be noted that it is quite possible in the 2019/20 year that individuals had standing instructions to treat excess payments as lump sum commutations or as withdrawals from an accumulation interest. Those standing orders can certainly be applied to all withdrawals made after the Government made the announcement about the minimum reduction in March 2020.
For more information on classifying amounts as lump sums refer to our fact sheet – Retirement Phase Lump Sum Withdrawals.
Government Fact Sheet – Providing support to retirees:
The Government have provided a fact sheet in support of this measure which can be found at https://treasury.gov.au/sites/default/files/2020-03/factsheet6providingsupportforretireestomanagemarketvolatility-25march2.pdf
One of the measures introduced to alleviate some of the financial burden that individuals faced as a result of COVID-19 was to allow individuals to access a portion of their superannuation.
WARNING: This is not applicable to all superannuation members AND is subject to ATO approval.
Those who have been significantly financially affected by Coronavirus were eligible to apply for up to $10,000 from their superannuation during 2019/20 and may apply for an amount up to a further $10,000 for 2020/21 provided they apply by 31st December 2020. This date was extended from the previous deadline of 24th September 2020. ALL applications must go through the MyGov website www.my.gov.au
To be eligible to apply individuals must satisfy one or more of the following criteria:
- Must be unemployed; or
- Must be eligible to receive a job seeker payment, youth allowance for jobseekers, parenting payment (which includes the single and partnered payments), special benefit or farm household allowance;
- or on or after 1 January 2020:
- were made redundant; or
- working hours were reduced by 20% or more; or
- if a sole trader —business was suspended OR there was a reduction in turnover of 20% or more.
Eligible SMSF Members MUST apply via my.gov.au, not to the trustee of their fund.
Note: For SMSFs the ATO will only send the determination to the member who is responsible for providing it to the Trustee, no money should be accessed prior to receiving this determination. The determination will be sent to the member’s My Gov inbox.
Applications for the 2019/20 Financial Year must have been made by 30 June 2020. The payment can be made after that date but not the application. Applications for release in 2020/21 must be made between 1 July 2020 and 31 December 2020.
Only one application per financial year is allowed, so if a member doesn’t apply for the full $10,000 or has multiple funds, they must nominate all funds in the one application up to the amount they wish to take.
The ATO have warned that members whose SMSFs have outstanding annual returns are unlikely to see their SMSF as an option on MyGov. To correct this the member will need to contact the ATO which will of course prompt the response to lodge outstanding returns prior to applying for early release.
Outstanding returns for the 2018/19 not lodged by 30 June 2020 may result in an SMSF being removed from a member’s MyGov.
Whilst the decision to apply is based on self-assessment, the ability for SMSF trustees to pay is not self-assessment and a fund can only act on receipt of a determination from the ATO received from the member who received it from MyGov. The text message confirmation from the ATO is not sufficient.
Government Fact Sheet – Early access to superannuation
The Government have provided a fact sheet in support of this measure which can be found at https://treasury.gov.au/sites/default/files/2020-07/Fact_sheet-Early_Access_to_Super.pdf
Early Release Compliance Issues
There have been some compliance issues raised where the ATO have either stopped an application and prevented the release or reviewed circumstances after the release. The ATO have noted they have several data sources to check including single touch payroll, income tax returns, reported information from super funds and other agencies. Where the ATO have concerns they will review a claim and potentially apply the general anti-avoidance measures in Part IVA of the Income Tax Assessment Act 1997.
Some of the issues identified by the ATO that have attracted reviews are as follows:
- Making an application when there has been no change to salary and wages
- Changing your affairs to meet the early release eligibility criteria
- Making false statements to fraudulently meet the early release eligibility criteria
- Temporary residents applying after 1st July 2020 as a permanent resident as they are not eligible for the second application round.
- Withdrawal and recontribution strategies
The withdrawal and recontribution of early release amounts is particularly concerning and should be avoided. The amount released should be genuinely required to deal with the adverse financial effects of COVID-19 and to give effect to a withdrawal and recontribution strategy for a tax benefit could give rise to the Part IVA anti-avoidance measures being applied. Where this occurs, the ATO would not only cancel the tax benefit but also apply penalties and interest charges.
Below is a summary on the latest superannuation updates as they impact SMSF investments.
In-house asset restrictions
One area that we at SuperGuardian have highlighted from the outset was in regards to whether any relief would be provided where a fund held in-house assets that exceeded 5% of the asset value of the fund, due to other listed investments being in decline due to market performance.
The ATO have confirmed that if an SMSF has in-house assets that exceed the 5% valuation as at 30 June 2020, then the SMSF MUST still prepare a written plan to reduce the assets below 5% by way of disposal by the following 30 June. However, the ATO have indicated that they will not take compliance action if the plan was not implemented under the following circumstances:
- Plan unable to be executed because the market had not recovered; or
- Plan unnecessary to be implemented due to market recovery i.e. asset now below 5%.
WARNING: As stated above, it is still a requirement under the law to prepare the written plan. Further compliance action is likely if a fund ignores this requirement.
For reference, an in-house asset includes:
- an investment in a related party of the fund;
- an investment in a related trust (exclusions apply for certain non-geared trusts that hold property and trusts that were established prior to 12 August 1999);
- loans to related parties (excluding loans to members and relatives which are prohibited); and
- assets subject to a lease, or lease arrangement to a related party, other than collectable and personal use assets as identified in the SIS Regulations.
In-house asset exemption
Another issue for SMSFs may arise where they provide a tenant, primarily related tenants, with a deferral of rent in response to the adverse financial effects of COVID-19, rent relief is discussed below. This issues extends to SMSFs that invest in property via related entities such as regulation 13.22B and 13.22C companies and trusts. For SMSF investment purposes, the deferral of rent is a form of financial accommodation which in simple terms amounts to a loan to the tenant. By providing a rent deferral where a related party is involved an SMSF is effectively acquiring a loan which is an in-house asset as they are owed rent from the related party. Further, Regulation 13.22D(b) of the Superannuation Industry (Supervision) Regulations 1994 specifies that where a 13.22B or 13.22C company or trust acquires a loan, regardless of whether the tenant is related or not, they no longer satisfy the requirements of Regulations 13.22B or 13.22C and as such they become in-house assets of the SMSF. The ATO have gone to great lengths to address concerns that deferring rent will create ongoing issues for SMSFs. Therefore, to prevent these unintended consequences arising, a draft legislative instrument has been released by the ATO, Self-Managed Superannuation Funds (COVID-19 Rental income deferrals – In-house Asset Exclusion) Determination 2020 (SPR 2020/D2).
The draft determination seeks to exclude these assets (the rent deferral) from being in-house assets in situations where the rent deferral has been provided on an arm’s length basis in relation to the financial impacts of COVID-19 for the 2019/20 and/or 2020/21 financial years. The concept of arm’s length is very important here to ensure the requirements would be met and supporting documentation needs to be held by the SMSF.
Whilst the determination is in draft format at this stage and does not cover rent reductions or waivers, it is hopefully finalised to prevent related party investments being inadvertently deemed as in-house assets simply due to rent deferrals being granted by an SMSF.
Altering or extending the terms of a loan agreement linked to a limited recourse borrowing arrangement, while not a direct contravention of the borrowing provisions, does on face value raise non-arm’s length income concerns, an issue mirrored with rent relief.
SMSFs with a related party limited recourse borrowing arrangement may be in a position where rent relief has or will be provided to tenants, placing the SMSF under financial pressure to satisfy their loan repayment obligations.
The ATO have indicated that repayment relief on the loan will be acceptable providing it is consistent with the terms commercial banks are offering. As a guide, many of the major lenders provided a three (3) month payment deferral (not a waiver) with an option to extend for a further 3 months. Interest was required to be capitalised during this period and added to the remaining term. The ATO have indicated that where an SMSF seeks loan relief, the terms of the loan must be amended to reflect these changes and evidence is retained that the interest has continued to accrue and has been capitalised. A fund that undertakes this process will not have the non-arm’s length income provisions applied to the property income.
Providing LRBA relief where an SMSF has borrowed from a related party needs to be considerate of the existing terms of the loan. If the loan is operated according to the ATO’s Practical Compliance Guidelines – PCG 2016/5, it should be noted that this document is very prescriptive with reference to terms of LRBA.
- Term of loan cannot exceed 15 years
Therefore, if the trustees are given payment relief, any relief should be contemplated over the remaining term of the loan, not an extension if that extension will breach the PCG terms. Refinancing of the loan will require consideration of term to date and can only contemplate a refinance of the loan subject to the term remaining.
Capitalisation of interest will need to be applied across remaining term – otherwise it won’t comply.
As a side note, if a related party LRBA doesn’t meet PCG 2016/5, because the trustees have elected to apply terms they consider to be commercial, then no guarantee of no further compliance activity is given by the ATO.
As stated above, loan relief should be consistent with commercial practices, being the terms offered by commercial banks. The Australian Banking Association’s website provides information for borrowers that are nearing the end of the original 6 month total loan deferral period. Where possible borrowers are encouraged to restart their repayments. Where still in financial difficulty, borrowers may be eligible for a further 4 month deferral period. The extension is not automatic and only available to borrowers who genuinely need it, and contact their lender.
Commercial loans may be restructured or varied through either extending the length of the loan or converting to an interest only payment period. It’s important that SMSFs document any changes to the terms to their loans and why they have changed. Where any changes are made its important that they are consistent with what the commercial banks are offering at the time, which in this case is a potential 4 month deferral period where genuinely required. However, PCG 2016/5 does not provide for interest only loans so this needs to be considered for related loans.
Temporary rent reduction
Many people have asked whether there will be an issue if an SMSF reduces the current rent for property owned by the fund. Often these properties, if business in nature, are leased to related parties.
Whilst the ATO have stopped short of encouraging SMSFs to reduce their rent, they have indicated that they are aware that landlords are providing a reduction or waiver of rent due to the financial impact of COVID-19 and as such they will not take action where an SMSF gives a tenant a temporary rent reduction during the 2019/20 and 2020/21 financial years. Obviously, it is incumbent on SMSF trustees to make an appropriate assessment as to whether a reduction is warranted based on each individual set of circumstances.
Below we provide an update specific to Commercial Property and then Residential Property.
SuperGuardian have been monitoring the rent relief situation closely, reviewing commentary from the Government, the ATO and importantly the audit firms we work with. Whilst there is no national response relating to residential property, commercial tenancy has been addressed with far more clarity. Please see below for detailed commentary on residential property.
Rent relief is an important issue for SMSFs because a significant portion of commercial property held by SMSFs is leased to related parties of the trustees of the fund. From a superannuation compliance perspective providing rent relief to related parties, could trigger contraventions of the following key investment restrictions:
- Sole Purpose Test
- Provision of financial assistance to members or relatives of members
- In-house asset rules
- Borrowing rules
01 May 2020, the ATO issued guidance to SMSF auditors, and the broader SMSF community, to indicate that they will not take compliance action associated with the above issues where a fund has implemented relief on commercial terms.
From an audit perspective, our auditors will not be required to lodge a contravention report for clients who breach these provisions by applying the Government’s commercial leasing principles, and the annual Audit Contravention Report (ACR) will be amended to reflect this. However, where the auditors are not satisfied that relief was provided on commercial terms or was not warranted based on the evidence provided (i.e. the tenants did not suffer from adverse financial conditions as a result of COVID19) then the auditor can still report and the ATO can review the fund.
As such, the onus will be on the auditors to assess each client’s situation meaning the more supporting evidence trustees can provide the better it will be.
What are the guidelines?
When a lease exists between an SMSF and a related party of the fund, SuperGuardian would urge all trustees to follow the guidelines provided by the National Cabinet Mandatory Code of Conduct, located here https://www.pm.gov.au/sites/default/files/files/national-cabinet-mandatory-code-ofconduct-sme-commercial-leasing-principles.pdf
For us, the key term in the title is mandatory. The Code specifically applies to businesses that qualify for JobKeeper i.e. they have experienced a fall in turnover of 30% or more. However, based on the ATOs commentary specific to SMSFs, if a tenant has suffered any adverse financial conditions due to COVID-19, we consider it logical and justifiable for relief to be based on a single set of standards. Should trustees and related party tenants seek to negotiate outside these terms then they will most definitely need to be able to justify that to the fund auditor.
The mandatory code came into effect in all states following the 3rd April 2020 when the National Cabinet agreed on the principles and was intended to be for the period during which the JobKeeper program was operating. The JobKeeper program was initially intended to run until 27th September 2020 however has been extended until 28th March 2021.
Whilst the mandatory code has been prepared at a national level, it is legislated at a State level and therefore the period to which the commercial rent relief is available actually differs by State. At the time of writing, most States have extended their timeframes for commercial rent relief to apply, or have proposed legislation to change dates. The following table summarises the legislation and current expiry periods together with a relevant links for each state and territory. Commercial property rent relief due to COVID-19
All negotiations must be undertaken in good faith and any relief must be proportionate to the impact.
Step One – Tenant Approach
The tenant needs to request the rental relief and be able to substantiate the fall in turnover. Utilising the JobKeeper basic turnover test, it would be appropriate to compare the period that relief is sought for to the same period last year to determine the turnover decrease. There are alternative tests where circumstances dictate that a tenant can’t make a reasonable assessment against a comparable period. Ultimately, for the purposes of the tenant requesting relief the more supporting evidence that can be provided the better.
Warning: the substantiation requirement for SMSF related party tenants is as much about future compliance as it is the initial negotiation, which presumes all parties will act in good faith. For example, if the tenant indicates their turnover has decreased or is likely to decrease by 80% for the June quarter, the landlord can offer rent relief based on that figure. However, it does not mean that 80% is applicable for all future periods i.e. regular reviews should form part of the negotiations.
Step Two – Applying Relief
If we use the 80% figure as an example, then the appropriate course of action for the SMSF landlord will be to offer an 80% reduction in rent. As per the Code of Conduct at least 50% of this reduction must be in the form of a waiver and the balance, let’s assume the remaining 50%, must be by way of deferral to be amortised over the remaining term of the lease or 24 months, whichever is longer.
The Code does provide for the minimum waiver amount to be lower than 50%, but this can only be done in agreement between both parties.
Step Three – Document on Decisions
The following documentation will be required for the SMSF to satisfy compliance obligations and to present to the auditor when the annual return is prepared:
- request from the tenant requesting relief and confirming the reduced turnover
- trustee resolutions acknowledging the request and outlining the agreed terms
- confirmation from the SMSF to the tenant confirming the proposed relief
Warning: We are not in a position to provide advice about the requirements to amend the terms of the lease, but any amendments agreed to above clearly needs to be recognised alongside the existing lease agreement.
Investment via Related Entities
It is not uncommon for an SMSF to invest in a unit trust that holds the property that is leased to a related party, with these investments exempt from the in-house asset rules providing all transactions are maintained on an arm’s length basis. Failure to satisfy these requirements would generally result in the SMSF being forced to dispose of its holding in the unit trust.
As a deferral of rent is akin to a non-arm’s length transaction, taking this action for a property held inside a trust would, under normal circumstances, result in the asset being treated as an in-house asset. However, the ATO have indicated that subject to similar rent relief terms being applied as for directly held properties, they will not treat the asset as an in-house asset in current or future years.
As noted under Investment relief – In-house assets, the ATO have released Self-Managed Superannuation Funds (COVID-19 Rental income deferrals – In-house Asset Exclusion) Determination 2020 (SPR 2020/D2). The draft determination seeks to exclude these assets from being in-house assets in situations where the rent deferral has been provided on an arm’s length basis in relation to the financial impacts of COVID-19 for the 2020 and 2021 financial years.
Can we update the above graphic to change the loan relief part to remove the word (pending) as the time has passed and add Potential 4 month additional deferral.
Dealing with unrelated parties
The focus of this update has been for those engaged with related parties. The Code of Conduct applies regardless of whether a tenant is related or not. However, as there is a greater compliance and taxation risk associated with related party transactions not being on arm’s length terms it is important that we focused on related parties.
Similarly, the Australian Banking Association have provided guidance on the relief banks are providing for property loans. If an SMSF has a LRBA with a commercial lender then it is appropriate for the SMSF to deal directly with that lender.
As a result of the COVID-19 pandemic there have been widespread impacts across the economy. With the increase in unemployment and many businesses being forced to close there has been a significant impact on the ability of tenants to pay rent.
To address the issues created by the pandemic, the government introduced a National Cabinet Mandatory Code of Conduct, which covered commercial properties and how to deal with situations where tenants required relief from their obligations. This was legislated at a State level based on the national guidelines available. Residential property on the other hand has only been addressed and legislated at a State level.
Residential property cannot be leased to a related party and therefore transactions should always be considered as being on an ‘arms length’ basis with an unrelated party.
The legislation differs amongst the states and territories but where a tenant cannot meet their rental obligations they need to discuss with their landlord and negotiate an agreement that is suitable. They need to work out a rent reduction amount and the timeframe the reduction will apply for. This will need to be documented and an SMSF landlord will need to have a copy of the signed written agreement to substantiate the change in rental income. Where an agreement cannot be reached there are services available to mediate.
Below we outline the measures introduced in each state relevant to SMSFs holding residential property, what evidence and documentation will be required from a compliance perspective and the relevant government links to refer to.
A quick link to the appropriate State is here:
The following link is to a document with a summary of the legislation, links to more information and the expiry of rent relief for each state Residential Property Rent Relief due to COVID-19.
In South Australia, from 30th March 2020, the Residential Tenancies Act 1995 was temporarily changed in response to the COVID-19 pandemic via the COVID-19 Emergency Response Act 2020. The changes will cease once all declarations relating to the outbreak of COVID-19 in South Australia have ceased or on 8th October 2020 (whichever occurs first).
The changes include the following:
- Short term moratorium on eviction for non-payment of rent due to severe rental distress as a result of COVID-19
- Prevents landlords increasing rent
- Allow landlords to use technology for routine inspections where possible unless exceptional circumstances (may use face time, live video or time stamped photos)
- Extend tenants ability to arrange to have repairs carried out by agreement with landlord.
- General protection for tenants who breach tenancy agreement in order to comply with direction under law related to COVID-19
- Land tax relief in certain circumstances where a property is no longer tenanted
If a tenant is impacted by COVID-19 but can still pay rent then they should continue.
Landlords should consider whether a claim on landlord’s insurance will assist with the rental shortfall or whether there is an option with their lender to defer loan repayments.
If a tenant is impacted and cannot meet their obligations then they should consider working with their landlord to make an alternative agreement. A landlord cannot evict a tenant where they are unable to meet their rent obligations due to loss of income or employment as a result of COVID-19. They should contact their landlord and put in place a written, signed payment plan and each party should retain a copy. A form for Consent orders can be prepared and lodged with the South Australian Civil and Administrative Tribunal (SACAT) so there is a formal record of the arrangement.
Where an agreement cannot be made, then it may need to be referred to SACAT. SACAT will assess the information and try to resolve the matter. They may also provide assistance in negotiations. Landlords or tenants may apply to terminate a tenancy agreement on the grounds of hardship. They will consider the following forms of evidence to indicate whether a tenant is suffering financial hardship as a result of COVID-19:
- Evidence that a tenant has lost their job due to the pandemic (for example a letter from their employer, a separation certificate or information about their business)
- Bank account statements to indicate little or no savings
- Evidence of applying for a Jobseeker payment from Centrelink
- Evidence that a tenant has applied for a release of money from their superannuation fund on the grounds of hardship
- A letter from an accountant or financial adviser
- Evidence of an application to the South Australian Housing Authority or other organisation for financial assistance with their tenancy
This will enable the SACAT to make orders including payment plans that are considered to be appropriate.
Residential Rental Grant Scheme
A once-off rental grant of up to $1,000 is available for residential landlords who reduce the rent of a tenant experiencing rental hardship due to the COVID-19 pandemic.
To be considered as being in rental hardship, a residential tenant must be receiving either the JobKeeper or JobSeeker payment as a result of the COVID-19 restrictions, have less than $5,000 in savings and pay more than 30% of their current income in rent.
The tenant and landlord need to demonstrate that a revised rental agreement has been negotiated as part of the application process.
The revised agreement will need to reflect that the landlord has provided rent relief to a tenant since 30 March 2020 and/or will provide such relief before 30 September 2020 (inclusive).
The amount of the rental grant will be calculated on the revised agreement and will be paid to the landlord to offset the provision of reduced rent to the affected tenant.
The rental grant is available for a multi-occupancy house, pro-rated for tenants that meet all other eligibility criteria required under the scheme.
The rental grant is in addition to any land tax relief provided under the Government’s scheme for landlords.
The Department of Human Services will administer the rental grant scheme and applications will close on 30 September 2020.
For more information on rental relief visit the South Australian Government’s Consumer and Business Services site:
In Western Australia, the Residential Tenancies (COVID-19 Response) Act 2020 was enacted and a moratorium on residential tenancy evictions began on 30 March 2020 and will be for 6 months until 29 September 2020. Other changes include the following:
- Rent cannot be increased
- Expiring fixed term tenancies will automatically convert to periodical tenancies
- Tenants who end a fixed term tenancy before its end date experiencing financial hardship from COVID-19 will not incur break fees (still liable for damage and rent arrears).
- Landlords are not required to carry out non-urgent repairs if they are experiencing financial hardship or have issues accessing the property due to restrictions on their movement.
The state government setup a scheme for grants of up to $2,000 for Western Australian private residential tenants who lost their employment on or after 20 March 2020 and are experiencing financial hardship due to the COVID-19 pandemic. Applications are open until 29 September 2020.
Eligibility involves meeting the following:
- You are a tenant or sub-tenant in a residential property, or a resident living in a rooming house, or residential park
- You live in Western Australia and you are permitted to live and work in Australia
- If you live in a residential property, you have, or shortly will have, lodged a tenancy bond with the Bond Administrator
- You are in ‘financial hardship’, meaning
- You lost your job on or after 20 March 2020 due to COVID-19; and
- You have less than $10,000 in personal savings; and
- You pay more than 25 per cent of your current after-tax income in rent per week
Note: Your rent is the amount that was payable per week as at 20 March 2020.
The grant is paid directly to the landlord for the equivalent 4 weeks rent up to a maximum of $2,000 (whichever is lesser). The grant must be applied against rent otherwise payable by the tenant. It must be agreed upon and may result in no payment of rent for 4 weeks, a reduction in rent for a time period or a reduction in arrears at the end of the emergency period.
A Residential Tenancies Mandatory Conciliation Service was established to help both landlords and tenants with rental issues during the COVID-19 pandemic. Its aim is to help negotiate agreements to avoid disputes in court.
For more information visit the Western Australian Government’s website:
In Victoria, from 29th March 2020, tenants and landlords are required to comply with the Residential Tenancies Act 1997 and the COVID-19 Omnibus (Emergency Measures) Act 2020. The temporary measures were to apply for 6 months until 26 September 2020 however the government has extended it until 28 March 2021.
The changes include the following:
- Moratorium on evictions
- Rent relief for eligible tenants
- Suspension of rental increases
- New dispute resolution process
- Changes on how either party can end a tenancy during the moratorium
- Land tax reduction (25%) for land subject to residential leases
Where a tenant seeks a rent reduction, all parties should try to reach an agreement, put it in writing and register it with Consumer Affairs Victoria. Supporting evidence from a tenant such as notice of employment termination and evidence of Centrelink payments can be requested. The agreement must include the following elements:
- Name of tenant
- Name of landlord
- Property address
- Rent pre-agreement
- Rent for the period of agreement
- Time period the agreement will be in place
The rent reduction needs to be reasonable for the circumstances and there is no pre-determined rate. A landlord needs to be clear about what reduction they can afford to accept and seek to understand what the tenant can afford to pay. A landlord may need to consider support available via landlord’s insurance, their lender and Government assistance including the land tax rebate and eligibility for a rent relief grant.
The State Government setup a scheme for rent relief payments of up to $3,000 for Victorian tenants experiencing rental hardship as a result of the COVID-19 pandemic. Where a rent reduction has been negotiated and lodged with Consumer Affairs Victoria or a dispute resolution/mediation has taken place with Consumer Affairs Victoria a tenant may be eligible. This is not applicable where a rent deferral has been agreed upon.
Eligibility criteria include the following:
- Household income must be less than $1,903 per week
- Less than $10,000 in savings
- Paying at least 30% of your income in rent
The government has recently increased the grant from $2,000 to $3,000 and extended the time to lodge an application to 28th March 2021. The level of personal savings allowable has also been changed from $5,000 to $10,000.
Note there are no citizenship or permanent residency requirements for eligibility.
The grant is paid directly by the Department of Health and Human Services to the landlord as a credit towards the negotiated agreement.
Where an agreement cannot be reached the new dispute resolution process should be followed. Consumer Affairs Victoria will work will both parties to reach an agreement that shares the financial burden. If a resolution is not made it will be referred to the Dispute Settlement Centre of Victoria (DSCV) for mediation. Where conciliation does not resolve the dispute, the Chief Dispute Resolution Officer may make a binding dispute resolution order for a reduced rent amount, a payment plan for rent or arrears or vary the terms of the rental agreement. If this does not take place then it will be escalated to the Victorian Civil and Administrative Tribunal.
Commercial and residential landlords who provide tenants impacted by coronavirus with rent relief consistent with the principles of the Support to Landlords and Tenants package, or who are unable to secure a tenant because of coronavirus, may be eligible for a 25% reduction on the property’s 2020 land tax.
These landlords can also defer payment of the remainder of their 2020 land tax assessment until, or before, 31 March 2021.
Eligible residential arrangements include tenancy agreements, specialist disability accommodation agreements and site agreements. Most holiday accommodation, such as hotels, motels, and bed and breakfasts, are not rented under eligible residential arrangements, and therefore are not eligible for land tax relief.
For more information visit the Victorian Government’s Consumer Affairs Victoria site:
The Residential Tenancies Amendment (COVID-19) Regulation 2020 was enacted in New South Wales. The measures introduced were as follows:
- 60 day stop on evictions for rental arrears which expired on 13th June 2020
- 6 month restriction on landlords evicting tenants financially disadvantaged by COVID-19 unless they have first attempted to negotiate a rent reduction with the tenant. The 6 month moratorium runs until 15th October 2020.
- Allow tenants financially disadvantaged by COVID-19 to terminate a rental agreement where the landlord will not negotiate with them or where they will avoid financial hardship
- Retain the ability for landlords to terminate a rental agreement in cases of undue hardship
If a tenant is not impacted by COVID-19 they should continue paying rent and relevant expenses in full.
The 60 day stop was intended to allow for time for government financial assistance to be provided where relevant and limit social movement.
Fair Trading NSW assist landlords and tenants to come to an agreement.
Under these new rules, a household is impacted by COVID-19 in the follow circumstances:
- One or more rent-paying members of a household have lost employment or income (or reduction in work hours or income) due to the COVID-19 pandemic.
- One or more rent-paying members of a household have had to stop working or reduce work hours due to illness with COVID-19, or COVID-19 carer responsibilities for household or family members AND
- The above factors result in a household income reduced by 25% or more (including government assistance)
Evidence that can be provided includes proof of job termination or loss of working hours, evidence of government income support and evidence of prior income.
Where a tenant cannot meet their full rental obligations due to the impact of COVID-19, they should discuss with the landlord an agreement for reduced rent or a repayment arrangement. Landlords may also have the option to negotiate reduced loan repayments or a repayment freeze with their lender where relevant.
Within the 60 day period, a landlord cannot issue a termination notice on the basis of rent in arrears if the above conditions are met for being impacted by COVID-19. After the 60 day period they can issue a termination notice or apply to the Tribunal for an eviction order if the landlord has participated in a rent negotiation with Fair Trading and its ‘fair and reasonable’ to terminate in the circumstances.
Anytime during the 60 day stop and the 6 month restriction, landlords can apply for the Tribunal to take possession of a property where they are experiencing undue hardship.
Where residential rent relief has been provided by a landlord due to COVID-19, the NSW government’s land tax relief may be available. Under the relief the reduction in land tax will be the lesser of the amount of the rent reduction between 1 April 2020 and 30 September 2020 AND 25% of the land tax attributable to the parcel of land leased to the tenant. The land tax relief is available to apply for up to 31st December 2020.
Any agreement must specify if a waiver or deferral is involved. If rent is deferred there must be a repayment plan in place.
For more information visit the New South Wales Government’s Fair Trading information site: https://www.fairtrading.nsw.gov.au/resource-library/publications/coronavirus-covid-19/property/moratorium
The Queensland government have introduced a number of measures as follows in their Residential Tenancies Practice Guide as part of the Residential Tenancies and Rooming Accommodation (COVID-19 Emergency Response) Regulation 2020:
- Tenants cannot be evicted where they have failed to meet their rental obligations due to financial stress caused by COVID-19. There is a 6 month moratorium on evictions up to 29th September 2020.
- Fixed term agreements due to expire during the pandemic will be extended until 29th September 2020 unless the tenant specifies a shorter term
- A cap on break lease fees for tenants where household income has reduced by at least 75% and savings of less than $5,000
- Owner obligations for routine repairs and inspections have been relaxed except for regulatory obligations to ensure tenant safety
- Tenants can refuse physical entry to the property for repairs and inspections particularly where there is a vulnerable person involved. Virtual inspections must be agreed to where physical inspections are denied
- Tenants and landlords must work together to reach an agreement. Where an agreement cannot be made they must undertake Conciliation services to resolve disputes
Under these rules, a household/tenant is impacted by COVID-19 and will satisfy the conditions for excessive hardship in the follow circumstances:
- A person is suffering excessive hardship due to the COVID-19 emergency if any of the following apply:
- one or more tenants or residents are afflicted by COVID-19
- they are subject to a public health direction to stay at a place
- a public health direction has closed their employment or restricted their employer’s trade or business
- they are self-isolating because they or a member of their household or a someone they are a primary carer for is a vulnerable person
- they are unable to work because of a travel restriction
- they have been prevented from returning to Australia; AND
- the person suffers a loss of income of 25% or more, OR
- the rent payable is 30% or more person’s income.
Meeting the above conditions will make a tenant eligible for the moratorium on evictions for rent arrears up to 29 September 2020. Where there is a dispute there is mandatory conciliation through the Residential Tenancies Authority.
Where both parties are not significantly financially impacted by COVID-19, the terms of the residential tenancy agreement must be adhered to. Additionally where a change in circumstances is not COVID-19 related, the original terms will apply.
Where the tenant is significantly financially impacted by COVID-19, they should look to negotiate rent relief. Tenants and landlords are required to come to an agreement on rent relief being ‘understanding and reasonable’ in their dealings.
The guidance suggests discussing with tenants about their options, their reasonable requests and the situation they are likely to be in after the pandemic subsides. A template letter is available to assist landlords in preparing a written response to a tenant’s request for relief. Evidence can be reasonably requested including the following:
- Employment separation certificate/evidence of job termination or loss of working hours
- Confirmation from Centrelink about government income support
- Medical certificate
- Details of prior income
The circumstances of the property owner must also be considered and they may also need to provide evidence of the financial impact. Both parties should seek to access both Federal and State financial relief packages where available (such as jobseeker, mortgage relief and land tax concessions).
Once the circumstances have been considered, the amount of rent reduction, the period it applies for and whether it is a reduction or deferral need to be documented in the official response. There are specific forms that also need to be completed to formalise the agreement in writing. They are the General tenancy, room accommodation and moveable dwelling COVID-19 variation agreements (Form 18d, Form 18e, Form 18f).
If an agreement cannot be made, the Residential Tenancies Authority’s conciliation service must be used to come to an agreement. If successful an amended tenancy agreement will be signed. Otherwise the party applies to the Queensland Civil and Administrative Tribunal.
The Queensland Government have produced a Residential Tenancies Practice Guide which can be found at https://www.covid19.qld.gov.au/__data/assets/pdf_file/0016/126313/residential-tenancies-practice-guide-april-2020.pdf
For further information visit the Queensland Government’s page: https://www.covid19.qld.gov.au/the-hub
Under the COVID-19 Disease (Emergency Provisions) Act 2020 the Tasmanian government have implemented the following measures:
- Immediate halt to termination by notice to vacate – any notice has no effect until 1 December 2020 but an application to terminate due to violence or damage caused by wilful behaviour can by made to the Magistrates court of Tasmania
- Delay in evictions due to rent in arrears until 1 December 2020
- Immediate halt to any increases in rent before 1 December 2020
- Reducing rent by mutual agreement – an agreement must be in writing and signed by both parties. The CBOS have a rent reduction template to assist the process
- Facility to break a lease due to severe hardship – this is a last resort and parties can apply to the Residential Tenancy Commissioner to have an order to terminate their agreement
- General repairs and maintenance will not be required to be done to limit trades entering properties however urgent repairs will be required to ensure health and safety of tenants
- Property inspections will be limited to specific purposes such as where lack of access may result in damage to the premises, risk to tenant on premises, damage has occurred, premises have been abandoned etc
Severe hardship may result from the following factors:
- Family tragedy
- Financial misfortune
- Serious illness
- Impacts of natural disasters and
- Other serious or difficult circumstances
Further to this a household is considered to be in a situation of severe COVID-19 related hardship if one or more of the members in a household paying rent:
- Have lost their job/income or their hours/income have been reduced due to a business closing down or standing down staff during the COVID-19 emergency
- Have stopped working or reduced work hours due to COVID-19 illness or now have carer responsibilities for the household or family members and
- The above factors have resulted in a 25% or more reduction in household income – this includes any government assistance.
Meeting severe hardship will enable a tenant or owner to apply to terminate the agreement.
Per the state government’s website, their strong advice is for tenants to continue to pay rent where they can afford to as there is no provision for a rent holiday.
Rent can be reduced my mutual agreement in writing and signed by both parties. The government website has a template available showing the parties need to show the value of the rent reduction and the period of time it relates to.
A residential rent relief grant scheme was also established and is available to eligible tenants. The scheme started on 25th May 2020 and has been extended until 1 December 2020. Rent relief payments of up to $2,000 can be paid to assist in supporting Tasmanians experiencing rental hardship due to COVID-19. There is also now a second round of payments available under the scheme for tenants still in hardship.
The scheme results in a one off payment to the landlord where a temporary rent reduction has been agreed. Eligibility for the grant requires the tenant to be renting in a private rental, they have experienced and can demonstrate financial hardship as a result of COVID-19, their rent expense is more than 30% of their household income and the household has less than $5,000 in savings.
The tenant and the landlord must agree on a rent reduction and complete a rent relief application form. If they are unable to reach an agreement it must be referred to the Office of the Residential Tenancy Commissioner to determine options. The tenant needs to be able to prove their eligibility for the scheme using the following:
- Income statements
- Bank statements
- Centrelink statements
- Tenancy agreement
- Rent relief application form
For more information visit the Tasmanian Government’s Consumer, Building and Occupation Services site: https://www.cbos.tas.gov.au/topics/housing/residential-tenancies-covid-19-emergency-provisions https://www.coronavirus.tas.gov.au/families-community/rental-housing
In the Northern Territory, the Tenancies Legislation Amendment Act 2020 was passed on 24th April 2020 to provide a framework for the tenancy issues arising.
The measures affect the following:
- Rent reductions
- Modified notice timeframes
- Modified entry and inspection processes
- Modified Northern Territory Civil and Administrative Tribunal (NTCAT) process for termination
The modifications to the tenancies act are in force until the end of the declaration of the public health emergency and only impact tenants affected by the pandemic. From the Government Gazette, No. S36 the declaration of the public health emergency was extended for a period of 90 days from 26th June 2020. The current expiry of the provisions would be 20th September 2020.
Tenants are encouraged to contact their landlord to negotiate a rent reduction where they are experiencing financial distress due to the COVID-19 pandemic.
COVID-19 hardship is defined as being where a person suffers any of the following hardships as a direct or indirect result of a Government COVID-19 direction:
- The rent payable by the person under a tenancy agreement exceeds 30% of household income
- The persons physical, mental or psychological health or safety is a risk
- An existing hardship mentioned above is made worse
Evidence provided for non payment of rent must be as follows:
- Written confirmation from the tenant’s employer of the reduction in income or the termination or suspension of the tenant’s employment, as the case requires; or
- Evidence of an approval of the tenant for, or receipt by the tenant of, a Commonwealth Jobseeker payment; or
- Where the tenant is unable to provide written proof from their employer or evidence of approval or receipt of Jobseeker, a certificate of COVID-19 hardship issued to the tenant by the Commissioner of Tenancies.
The negotiation between tenants and landlords should seek to determine a suitable outcome for both parties and any decisions must be documented.
Landlords are requested to assist struggling tenants where possible and if rent waivers cannot be granted than deferrals should be considered.
Landlord’s insurance should be considered where possible if a claim may assist with non-payment of rent. Landlords can also apply to terminate a tenancy if in financial hardship.
NTCAT can decide to waive or defer rent rather than terminate a tenancy agreement where they are satisfied the tenant is in financial hardship caused by COVID-19.
For more information visit the Northern Territory’s Consumer affairs site: https://consumeraffairs.nt.gov.au/rental-changes-due-to-covid-19
A range of temporary measures have been made to the Residential Tenancies Act 1997 to both protect tenants and assist landlords being affected by the COVID-19 pandemic.
The main measures include the following:
- Moratorium for 6 months to 22nd October 2020 on evictions for non-payment of rent for COVID-19 impacted households;
- Ability to negotiate rent reductions
- Freeze to rental increases
- Relaxing the time period for non-urgent repairs
- Changes to the way certain inspections are performed (virtual)
The ACT are providing a land tax and rates rebate where landlords of residential properties reduce rent by at least 25% for tenants impacted by COVID-19. The land tax and rates rebate will be equal to 50% of the rent reduction up to a maximum of $2,600 over six months. Landlords need to apply to the ACT Revenue Office.
Where a tenant’s household income is not affected by COVID-19 they are expected to continue to pay their rent however where there has been significant impact, tenants and landlords are encouraged to come to an alternative agreement.
Landlords can offer a reduction in rent and as stated above where it is 25% or more they may be eligible for a further rebate. To apply for the rebate they must complete an online application form and provide the following:
- Revised residential tenancy agreement;
- Written confirmation to the tenant, from you or your managing agent, advising of the temporary rental reduction; and
- Contact details or your managing agent’s contact details.
To provide evidence that a tenant is impacted by COVID-19 they should provide the following:
- Proof of eligibility for JobSeeker or JobKeeper payment;
- Proof of job termination or stand-down such a letter or email from your employer;
- Proof of loss of work hours such as rosters showing a reduction in hours;
- Proof of prior and current income in a bank statement or payroll; or
- Making a statutory declaration.
Where the tenant and landlord come to a mutual agreement to reduce rent due to financial hardship, they will need to include a COVID-19 temporary rent reduction clause in their residential tenancy agreement and provide a written confirmation of the agreed upon rent reduction and the time period that it applies for.
For more information refer to the ACT Government website: