Clarity provided on NALI risks with reduced insurance commissions
A technical expert has reassured advisers with their own SMSFs that reduced insurance premiums resulting from the removal of insurance policy commissions would not be considered expenditure of a general nature under the new NALI provisions.
SMSF specialist adviser Mark Ellem said while the removal of insurance commissions by an adviser with their own SMSF who has written the insurance contract would result in lower insurance premiums, it would not be considered expenditure of a general nature.
“The insurance premiums, being the relevant expenditure, would be considered specific to the insurance policy and not expenditure that is of a general nature. Consequently, only the ordinary and statutory income from the insurance policy would potentially be caught by the broadened NALI rules,” he explained in an online Accurium article.
“However, income from an insurance policy is taxed under the capital gains tax provisions and is specifically exempt from the capital gain rules under section 118-300 Tax Act 1997. Consequently, even if the NALI provisions apply, there is no ordinary or statutory income to be treated as NALI.”
Alternatively, if the commission is considered to be a “fee” for the insurance advice, then such expenditure or lack of such expenditure would also be regarded as specific to the asset of insurance, he said.
Mr Ellem said the SMSF industry would still need to wait until the final version of LCR 2019/D3 is released by the ATO, however.
“Where a view is taken that such expenditure is of a general nature, PCG 2020/5 would apply until 30 June 2021 and we await further guidance from the finalisation of LCR 2019/D3.”
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 has also directed SMSF Adviser's print publication for several years.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.