A senior executive has warned SMSFs receiving discounted administration services applicable to all staff within an accounting firm may still trigger the non-arm’s-length expenditure (NALE) provisions in certain circumstances.
The rules state in most situations SMSF trustees can enjoy discounted administrative services without activating the NALE penalties regarding general expenses as long as the reduced price has been made available to all employees of the firm in question.
Accurium superannuation adviser Natalie Scott noted this will be the case unless the trustee enjoying the reduced fee has influence over the discount policy. She gave an example of the type of situation where this phenomenon may materialise.
“So from this perspective if you’ve got a client who is [running] a single-partner firm, they’re probably able to influence the discount policy within their practice so you wouldn’t be able to have [the all-staff NALE discount consideration] apply in that scenario,” Scott told attendees of a technical webinar she hosted today.
Scott took the opportunity to stress the NALE provisions relating to general expenses would not apply only if the discount for services is made available to all employees and not just those on the same seniority level as the SMSF trustee.
She used an example where a real estate agent provides management services for three properties owned by his SMSF. He uses the business to lease the properties to tenants, but the day-to-day management of the assets is performed in his individual capacity and not through the firm. He charges $500 for the services when the business would usually bill clients a fee of $800, but all directors of the firm are entitled to this discount.
In analysing the scenario, she noted the day-to-day management of the properties would likely be deemed to have been done in his personal capacity as the fund’s trustee, so that would not trigger the NALE rules.
However, she acknowledged there would be a risk the SMSF could fall foul of the NALE provisions because the service discount was only provided to company directors and not all employees.
If you have any questions regarding NALE, don’t miss the opportunity to put them to some of the best technical experts in the industry at SMSF Professionals Day 2025. Please visit https://www.accurium.com.au/smsf-professionals-day/ to register.
