The SMSF sector is unlikely to be successful in opposing the implementation of non-arm’s-length expenses (NALE) provisions by the ATO, but should expect some form of ‘safe-harbour’ threshold to be applied to the arrangements, according to a technical expert.
Speaking at the SMSF Association 2020 National Conference on the Gold Coast today, SuperConcepts technical services and education general manager Peter Burgess said despite parts of the SMSF sector putting forward their opposition to NALE’s application to general expenses, it was likely to be introduced.
“Parts of the sector have challenged the ATO view that NALE can apply to general expenses and asked how there can be a direct nexus [with all income in an SMSF] because of general expenses,” Burgess said.
Burgess said Treasury, which created the framework for the NALE provisions in Treasury Laws Amendment (2018 Superannuation Measures No.1) Bill 2019, supported the ATO’s view in its draft Law Companion Ruling (LCR) 2019/D3 and “it is unlikely the industry will win this argument”.
“If that is the case, will we will see some form of de minimis threshold or safe-harbour threshold? I think we might and if so, the NALE provisions may not apply,” he said.
The application of NALE to services provided by a fund trustee in an individual capacity would probably not be addressed through a materiality threshold but via more detailed guidance from the ATO, he said.
The ATO was working to release a finalised ruling by the end of the financial year that would contain more guidance on the use of business assets in providing services to an SMSF, he noted.
“I don’t believe the ATO will apply the NALE rules if the use of business assets is trivial and will provide advice on what use they consider to be trivial,” he said.
He pointed out that while general expenses will not be examined by the ATO during the 2019 and 2020 financial years, specific expenses are still subject to non-arm’s-length provisions and cautioned SMSF practitioners to use common sense in their use of business assets when dealing with an SMSF.
