‘Clearly articulated policies’ around services vital with NALI
SMSF professionals should think carefully about what services they provide to their SMSF from 1 July 2022, with the ATO to cease its transitional compliance approach for certain non-arm’s length income rules from July.
Back in July 2021, the ATO released LCR 2021/2 clarifying how the amendments to section 295-550 of the Income Tax Assessment Act 1997 (ITAA 1997) operate in a scheme where the parties do not deal with each other at arm’s length and the trustee of a complying superannuation entity incurs non-arm’s length expenditure (or where expenditure is not incurred) in gaining or producing ordinary or statutory income.
The ATO ruling confirmed that the general expense cannot have a direct link to the income of the fund and that non-arm’s length expenditure (NALE) can have a sufficient nexus to all the ordinary and/or statutory income derived by the fund.
The ATO last year also announced an extension on the transitional compliance approach in PCG 2020/5 for another 12 months, which means it will not allocate compliance resources in the 2021-22 financial year to determine whether the NALI provisions apply to all the income of the fund where it incurs non-arm’s length expenditure of a general nature.
With 1 July 2022 not far off, Heffron managing director Meg Heffron said accountants and advisers should be thinking carefully about what services they’re providing to their SMSF.
“Whilst the final version of the ATO’s ruling was a little more practical than the first version, it’s still probably going to mean that a lot of advisers and accountants need to look carefully at their own practice,” Ms Heffron told SMSF Adviser.
“You’ve got some blatant cases like my own where I’ll have to start paying for my SMSF administration – not to me but to the company – but you’ve also got other cases where accountants might be using resources and specific licences of their employer, which means they need to be careful about making sure that they’ve got a reasonable basis for the amount that their businesses charge the SMSF.”
SMSF firms may need to think about their policies around the use of the firm’s software and the accounts being completed by the firm’s staff at perhaps a discounted rate.
“[You] just need to make sure there’s a clearly articulated policy around staff discounts so that can be argued to be arm’s length. So it’s a matter of looking at the arrangement you have and making sure it can be justified,” said Ms Heffron.
Ms Heffron also said that it’s a good idea for SMSF members to keep records of staff discounts or policies, given that it could be open to scrutiny.
“If there is a staff discount policy, they’d want to have that written down and they’d want to have that on their files that a staff discount policy applied to all people in a relevant group not just unique to them,” she said.
Miranda Brownlee
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.
