NALI trap flagged with multi-purpose corporate trustees

Mr Butler explained that if the family trust or company picked up the entire fee, then this could be considered a contribution under the ATO’s ruling TR 2010/1 on the basis that it is an expense payment on behalf of the super fund.

However, with the ATO recently shifting its approach to contributions in the revised draft ruling TR 2010/1-DC, being the revised ruling on contributions issued in draft for consultation (DC) following the NALI changes which took effect from mid-2018, the division between NALI and contributions is unclear, he noted. 

In TR 2010/1-DC, the ATO states that where the person making the contribution and the superannuation provider are not acting on an arm’s length basis, the ‘non-arm’s length income’ provisions may apply to ordinary or statutory income that is derived with respect to the asset to which the contribution relates. 

“The person and the superannuation provider will not be acting on an arm’s length basis where the superannuation provider is aware, or objectively should be aware, of the contribution being made, and does not record the market value of the increase in capital as a contribution to the relevant member or members as required under the SISR,” the ATO states in TR 2010/1-DC.

It is not entirely clear at this stage, therefore, whether this annual ASIC fee would be considered a contribution or non-arm’s length income where it is paid for entirely by the family trust or business, cautioned Mr Butler. 

“There is no clear barrier between what is a contribution and what is considered non-arm’s length income and it would be great to get ATO clarification on this matter.”

Mr Butler said the prudent approach would be to have the super fund contribute to the cost of the ASIC fee. 

However, this raises a question around what the appropriate allocation of the ASIC fee is, he noted.

The current annual ASIC fee for a special purpose company is $59, while a proprietary company is $290. 

“Do you do it on the basis that you allocate $59 to the SMSF while the remaining $231 is paid for by the family trust or the company in its capacity of carrying on the business?” he questioned. 

“Or alternatively, do you split it 50/50? Or perhaps you shouldn’t allocate anything to the SMSF because it’s a trustee expense and trustee expenses should not be allocated to the super fund. So we’ve got three potential views there.”

Mr Butler said SMSF trustees in this situation should have good records in place supporting their basis for how they’ve allocated the fee.

“I think the preferred apportionment would be to split the fee for the sole purpose company from the one for the general purpose company as your annual review fees,” he said. 

Mr Butler said he hoped the ATO “would not be concerned with such a trifling expense but from 1 July 2023 SMSFs need to be aware that a fund’s entire income can be taxed at a 45 per cent tax rate where a general expense is lower than an arm’s length amount”. 

“That’s where SMSF trustees need reasonable benchmark evidence to support their defence against NALI, or nasty assessment from the ATO,” he cautioned. 

If the ATO does look at the issue, Mr Butler said it’s likely the ATO would probably see the payment of the ASIC fee on behalf of the SMSF as a contribution rather than as NALI. 

“However, the Joint Professional Bodies that have been seeking a legislative fix on NALI, [will not be providing] feedback to the ATO on its draft ruling TR 2010/1-DC until the Government provides the legislative fix for NALI.”

“This is unfortunate, as until a legislative fix is made, the divide between what is a contribution compared to what is NALI is uncertain. The superannuation industry is naturally keen for clarification.”