The SMSF administrator’s chief executive, Meg Heffron, said in a recent blog post that the group “didn’t propose the solution the regulator was obviously hoping for” in its submission to the ATO’s draft guidance around application of the new rules, as it felt the extension of NALI to general expenses was unnecessary on the regulator’s part.
“Instead we’ve asked a host of questions that will need to be answered for this to be even remotely workable,” Ms Heffron said.
“Some of these are, would they take the same view [that all an SMSF’s expenses were NALI] if Heffron’s CFO who is not an SMSF accountant used our equipment, tools and tax agent service to look after her SMSF? What if our staff did their compliance work on their own equipment and software and Heffron simply lodged the return for them?”
Ms Heffron also pointed out that there were contradictions in the guidance around staff discounts being acceptable “where they are consistent with commercial practices”, but giving the example of an accountant that engages her firm to do her SMSF’s returns for free and will have all her fund’s income counted as NALI.
“My SMSF’s returns are completed by Heffron staff at discounted rates, [so] it looks like in future that would mean all income of my fund is NALI,” she said.
“But what if all Heffron staff are offered the same discounted fees [or] all Heffron staff at a particular level of seniority are offered an identical discount? Would that be enough?”
She added that in the cases of SMSF service providers like Heffron, staff were “in a complete bind” under the new rules as they were caught between rules stipulating trustees could not be paid for fund services, and the new provisions stipulating they had to charge for these services.
“They can’t charge the SMSF for their services because they personally do not offer these services to the public and so are prohibited by the usual rules that dictate SMSF trustees cannot be paid,” Ms Heffron explained.
“Heffron could charge them, but I expect that would go down as well as cancelling the Christmas party. [Or] they could pay another accountant/administrator to do them. Is that really what we’ve come to?”
The comments come following an SMSF Adviser report earlier this month that the ATO would not devote compliance resources to policing the general expense rules.
Ms Heffron said while the news had been reassuring to the industry, “in that case, wouldn’t it have been simpler to avoid all the angst created by the ATO’s recent draft guidance?”
The BIG issue is that an SMSF could easily be taxed $75,000 per year when in retirement phase if they contravene the ATO’s new NALI interpretation involving a very small amount. The ATO saying we will look the other way is NOT a sufficient response !
public pronouncements are draconian.
If the ATO mean otherwise then take the lead expected of the paramount SMSF supervision body and provide real world examples of what won’t comply and what won’t be argued at the other end of the spectrum. If people want to take a risk doing something in between it is on the taxpayer but at least provide some goal posts.
Don’t simply say that for moment we won’t police the law. That is like saying speed all you like until we have time to set up spreed traps and then we will retrospectively fine you for the last 3 years.
Some simple benchmarks like:-
1. any accounting, tax and/or administration services that are provided to clients of a firm, that are also used by the trustee who happens to be a financial professional within a firm, that have a cumulative value of less than $5k p.a. on average will be deemed to NOT be NALI
2. one off events such as retirement, death or the like that involve limited additional professional work will be reviewed on a case by case basis but generally where the work is predominantly undertaken by the trustee in their own time such will not be considered NALI
3. where a trustee uses the resources of their firm to manage investments on the SMSF’s behalf then such services should be charged for at a rate of not less than 50% of the rate usually charged to clients of the firm
4. where an SMSF is a passive investor in a business there is an expectation that the business profit will not be materially subsidised by the SMSF trustee’s other income producing activities. Failure to operate the business that the SMSF has invested in on a commercial basis with SMSF trustee other associated interests may constitute NALI.
5. Incidental resources such as computer software, investment research and the like that are maintained by a trustee’s professional firm, which have a cumulative commercial value of less $2.5k p.a., will not be considered NALI.
I’m sure the ATO’s resources and experience can come up with a tighter and more controlled set of parameters. So ATO, please do your job and take the lead on this.
ATO headless chooks constantly pursuing the Industry Super Fund & Labor Party hate SMSF campaign at every turn until we all have to no choice but to only use Industry Super Funds.
Absolute Left Wing nutters !!!!!!!!!!!
Well said Meg. We have asked many of those questions in our office also. At the moment, I complete my work at home in my own time, using my own computer but my work login for BGL and lodging via work’s TAN. Sometimes I will use the work computer on my lunch break. I don’t get charged for anything except outlays, ie the BGL cost of hosting the fund. I really don’t see why this suddenly makes ALL of the income NALI. As far as I can tell, it is standard industry practice across the board and therefore would come under the exception of staff discounts being consistent with commercial practice, right? I’ve never seen an accountant charge themself for any of their work completed be it SMSF, company, individual or trust. Surely my experience can’t be unique?