Related-party leases: a checklist for companies, family trusts and SMSFs

Start with the correct parties and actual use

Identify the registered owner, trustee and trust capacity, operating tenant and any guarantors. Check that each party has authority to enter the lease and that the permitted use matches the business. Related parties may still have a retail lease: the Retail Leases Act question turns on its statutory tests, not family relationships.

A signed lease records more than the rent. It allocates repairs, insurance, outgoings, make-good obligations, options, default rights and security. Records of rent paid and reviews completed should match the agreement.

SMSF property: separate tests must all be met

Section 66 of the Superannuation Industry (Supervision) Act 1993 generally restricts acquisitions from related parties. One exception for a fund with no more than six members concerns business real property acquired at market value. “Business real property” generally requires the relevant real-property interest to be used wholly and exclusively in one or more businesses, subject to specific statutory rules. A commercial zoning or a business name on the lease is not sufficient evidence by itself.

Section 71 separately addresses in-house assets, including assets leased to related parties. The business-real-property exception has its own conditions, including use throughout the relevant lease arrangement. The general 5% in-house-asset limit is not permission to enter a prohibited acquisition. Check sole-purpose, financial-assistance, borrowing and other investment restrictions as well.

Section 109 requires dealings on an arm’s-length basis, or terms no more favourable to the other party in the circumstances, and regulates subsequent dealings. Obtain support for the rent and other terms and apply them in practice. An independent rental appraisal is useful evidence, although it does not cure a breach of another rule.

NALI: no universal extra-tax calculation

Section 295-550 of the Income Tax Assessment Act 1997 can treat income as non-arm’s-length income where its conditions are met. Above-market income or non-arm’s-length expenditure connected with an asset may raise issues; specific expenses and general expenses are not treated identically. The consequences depend on the arrangement and current law. A simple multiplication of annual rent by an assumed extra tax rate is not a reliable universal result.

Below-market rent is not harmless merely because it does not increase the fund’s income. It can raise separate SIS compliance concerns. Have the fund’s auditor and advisers examine both investment compliance and tax treatment.

Company and family-trust landlords

Review the deed or company authority, conflicts, ownership and agreed cost allocation. Do not import SMSF rules into an ordinary family trust or assume every non-market rent automatically creates a Division 7A dividend. Company payments, loans, benefits or unpaid entitlements require their own analysis on the actual facts.

Check land-tax treatment at owner level and recoverability under the lease separately. Commercial rent is generally subject to GST where the taxable-supply conditions are met, including the landlord’s registration position; related-party status alone does not make it GST-free. State whether rent is GST-exclusive and deal with invoices and outgoings.

Ten-point lease checklist

1. Written lease: correct parties, trustee capacities, premises, use and term; retain executed copies.
2. Appraisal: evidence supporting rent, incentives and other material terms, particularly for an SMSF.
3. Rent review: clear method, dates and a record that reviews were actually implemented.
4. Outgoings: specify each recoverable cost and apply any retail land-tax cap.
5. Disclosure: assess retail status and complete required disclosure before entry.
6. Guarantees: decide whether security is appropriate, check authority and obtain any required independent advice.
7. Option dates: diary the exercise window and notice method, not only the expiry date.
8. Holding over: review the legal terms after expiry; do not assume an expired lease is renewed on identical terms.
9. GST: check registration, tax invoices, rent wording and treatment of reimbursements.
10. Annual review: reconcile payments and arrears, business use, insurance, reviews and SMSF audit evidence.

If the lease has lapsed or rent is unpaid

Provide the executed lease, option notices, payment ledger and correspondence. Identify any holding-over arrangement and assess continuing business-real-property use and arm’s-length conduct. Do not backdate documents to manufacture compliance. Agree corrective steps and their effective dates with the legal, accounting and fund advisers.

If borrowing is involved, also check the current LRBA rules. The separate guide explains the change to new real-property borrowing from 10 August 2026 and its transitional provisions.

Official sources

• Superannuation Industry (Supervision) Act 1993 — sections 66, 71 and 109
• Income Tax Assessment Act 1997 — Divisions 104, 115 and 152
• Retail Leases Act 1994 (NSW) — sections 3, 5, 11–12A and 22–30
• ATO — GST and commercial property