A compliance guide recently released by the office states: “The ATO will not allocate compliance resources to determine whether the NALI provisions apply to a complying superannuation fund for the 2018–19 and 2019–20 income years where the fund incurred non-arm’s length expenditure of a general nature that has a sufficient nexus to all ordinary and/or statutory income derived by the fund in those respective income years, for example, non-arm’s length expenditure on accounting services.
“The ATO recognises that trustees of complying superannuation funds may not have realised that the proposed amendments will apply to non-arm’s length expenses of a general nature that has a sufficient nexus to all ordinary and/or statutory income derived by the fund in an income year.
“It is expected that trustees of a complying superannuation fund that have incurred non-arm’s length income of a general nature that has sufficient nexus with all ordinary and/or statutory income derived by the fund will alter their arrangements in order to ensure the proposed amendments will not apply to their fund after the expiry of the ATO’s transitional compliance approach.”
The news comes following the office’s clarification that financial services professionals who provide services in a business capacity to their own SMSF for less than market rates could see all the fund’s income attract the top marginal rate of tax.
However, if services such as accounting are provided by the trustee in a personal capacity, the SMSF’s income will not be treated as NALI.
Commenting on the new guidelines, SuperConcepts general manager of technical services and education Peter Burgess said the application of the new NALI rules — which recently passed Parliament along with a range of other changes to super — to general fund expenses had taken practitioners by surprise.
“The explanatory materials that were released with this legislation said there must be a sufficient nexus between the non-arm’s length expense and the income; that is, the expenditure must have been incurred in gaining or producing the relevant income,” Mr Burgess said.
“It does seem somewhat heavy-handed to require an SMSF to pay many thousands of dollars in extra tax just because they didn’t incur a bill for the accounting services provided by their accounting firm.”
Mr Burgess added that the distinction between services provided to an SMSF in a personal or business capacity was too open to interpretation and required further clarification from the ATO.
“Perhaps the way forward is to firstly make clear that transactions with unrelated parties are excluded from these provisions — that will deal with any suggestion that staff discounts provided by a firm to their employees, for example, discounted accounting or admin fees, may have a knock-on effect from their SMSF,” he said.
“Secondly, define what we mean by a trustee service or duty, and then any service which constitutes a trustee service or duty should be carved out regardless of who provides this service to the fund and regardless of whether a fee has been charged.”
I do the SMSF admin for a mate of mine. I am a CPA in public practice but not a tax agent, nor do I provide admin services professionally. Because I don’t charge my mate, is he going to be assessed for NALI?
I fail to see how preparing a tax return and financials has any relation to earning income. It is reporting on income earnt as required by law. It costs money, not earns money. The ATO is clearly interpreting things obscurely for their own benefit, and is also clearly out to make life as difficult as possible for accountants.
Legislation of this nature should NOT be backdated. I am not a lawyer, but I thought this was canned when parliament was pro-rogued for the election back in March. I’d be curious for an appropriately qualified person to comment on the voracity? Fairness is the issue. Suppliers issued invoices. Trustees made decisions in good faith. Agents have already lodged tax returns. The lawmakers are definitely screwing our system up royally by backdating something by 16 months. It is little wonder costs are escalating with such poor procedures now evidenced in much legislation. More and more is becoming retrospective. Is this the way the government gets their budgets back into surplus -“we’ll just back-date, so we can accrue the income!”