NALI changes 'awkward,' implicate SMSF firms' employees
A bill currently before the Senate could raise non-arm’s length income issues for employees of SMSF firms receiving discounts for SMSF services and is further complicated by its retrospective application.
In May this year, the government introduced Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2018 into parliament, which contains a number of changes to the provisions for non-arm’s length income.
One aspect that’s unclear under the bill is whether non-arm’s length income would arise where an SMSF trustee who is an employee of an SMSF firm receives a discount for services they’ve received, explained DBA Lawyers special counsel Bryce Figot.
For example, an SMSF trustee might be a partner in a firm of accountants, he said, and the firm prepares and lodges the SMSF’s financial statements and statutory annual return at a discount, charging $1,500 instead of the usual $3,200.
Under current law, the $1,700 saving is very unlikely to cause non-arm’s length income for the SMSF, said Mr Figot.
However, it is difficult to tell if this is still the case under the new laws currently before the Senate, he warned.
The explanatory memorandum materials state that the non-arm’s length income rules do not apply “in respect of a superannuation entity’s arrangements that are purely internal”.
As previously reported, the EM makes it clear that an SMSF trustee undertaking bookkeeping activities for their own fund is not a NALI risk under the new laws, because it’s in “internal function” and does not “constitute a scheme between parties dealing with one another on a non‑arm’s length basis”.
Mr Figot said it was not clear, however, whether an SMSF trustee receiving services for a discount from the firm they work for would also be considered an internal function.
Another complication with the bill is that it applies retrospectively from 1 July this year.
“These changes are scheduled to take effect from 1 July 2018, so retrospectively. The bill introducing these changes was introduced some time ago pre 1 July 2018, and has sat in parliament for [a while]. So that puts us in this awkward position,” he said.
“There’s every reason to believe that this legislation will be passed, but what do we advise our clients right now? I think we have to assume this legislation has passed.”