“Essentially, if [the work done] is a trustee duty, you cannot charge a service, and there will never be any NALE because you don't remunerate trustees for trustee services. The LCR 2021/2 has a number of factors to take into consideration to see whether the services provided are in the capacity as an individual or in the capacity as a trustee, and there are a number of things that you need to think about when you're looking at that.”

It is also important to understand the interaction of NALE with the super compliance laws and from a superannuation perspective, and SMSF professionals should focus on the SIS Act, Scott added.

“The SIS Act does have requirements in relation to arm's length rules, specifically in section 109 which talks about having to deal with the party on arm's length terms, and making sure that SMSF isn't worse off due to the transaction.”

“If you're dealing with a related party and the SMSF is worse off, for example, you’re leasing a property to a related party that is paying below market value for that commercial property, then you’re going to breach section 109 of the SIS Act. Alternatively, with the Tax Act, if you have the same commercial property, and leasing it for higher than market value, then you’re going to have an income tax issue, non-arm's length income, and section 295-550, will apply.”

She continued that it’s essential to be “right in the middle”, as often it’s difficult to come up with what an arm's length figure should be, and a lot of onus is on the trustees to make sure that they have documentation to back that up.

Scott reiterated that it’s important to keep in mind who is performing the work – if the person that's performing the work isn't a trustee of the fund, then they can't be doing it in their capacity as a trustee.

“Something else important to note, if you are looking to remunerate the work because they're doing it in an individual capacity, then you need to make sure that you meet the requirements set out in Section 17B of the SIS Act,” she said.

“The first requirement is that the duty is not performed in their capacity as trustee. So you need to be doing it in an individual capacity. The second one is that the person is appropriately qualified and holds licenses to perform those duties.

“For example, an electrician needs to have an electrical contracting license to be paid for the services they've provided to a rental property in the SMSF. That electrician would also need to be carrying on that work in the ordinary course of business, so you'd expect them to carry on an electrical contractor’s company or as an individual sole trader to make that payment.”