ATO sheds ‘welcome light’ on proposed NALI changes

The proposed amendments to the NALI provisions are currently before the Senate.

SuperConcepts general manager of technical services and education Peter Burgess said that the LCR “sheds some welcome light on the way the ATO will administer the proposed NALI changes”.

Mr Burgess said that in terms of the services a trustee provides their own fund, it appears the impact won’t be as significant as first thought.

“My reading of the draft ruling together with section 17B of the SIS Act suggests the proposed new NALI rules are only likely to apply in very limited circumstances,” Mr Burgess said.

“Those circumstances appear to be where the service relates to a particular fund investment, is not a service they are performing in their capacity of trustee and they are licensed to provide the service but they charge their fund a lower fee than they would charge the general public.”

However, if the service relates to a particular fund investment and is being provided by a related entity on non-arm’s length terms, then the new NALI provisions would apply, he explained.

When the bill and explanatory memorandum were first released, Mr Burgess said that there was concern these NALI changes may have a much broader application and would capture virtually all services that a trustee provides their own fund on a non-arm’s length basis, aside from a small number of services a trustee performs in their capacity of trustee of the fund.

“However, what the draft ruling appears to be saying is that if the trustee provides a service to their fund and they are not able to charge their fund because they are not licensed to provide that service, the non-charging of that fee won’t invoke the new NALI rules,” the general manager said.

Presumably this is because the trustee is considered to have performed that service in their capacity as a trustee.

This approach appears to address the previously reported NALI dilemma, he explained, that is the new NALI rules could apply if no fee is charged even though the trustee is prevented from charging a fee under section 17B because they are not licensed to provide that service.

“In this regard, I think the industry would welcome the approach outlined in the draft ruling,” he said.

What is still not clear, he said, is what constitutes a service a trustee performs in their capacity of trustee of the fund.

“For example, if a financial adviser provides investment advice to their own fund and doesn’t charge their fund for that advice, will that invoke the new NALI rules?” he said.

“In my view, that type of service would or should constitute a service a trustee performs in their capacity of a trustee and, therefore, shouldn’t invoke the new NALI rules. But it’s difficult to reach that conclusion reading the draft ruling and the Explanatory Memorandum.”