A solution to dealing with non-arm’s-length expenditure provisions (NALE) within SMSFs has been mapped out and could be in place by the end of the financial year if accepted by the ATO, according to an SMSF technical expert.
Smarter SMSF chief executive Aaron Dunn said there had been ongoing discussions about a solution to what is being referred to as an arm’s-length shortfall amount and its treatment by the ATO.
Dunn said while the shortfall amounts could be the result of honest or inadvertent errors, “the fact is we have ended up in a situation whereby this material amount is creating quite a profound tax consequence and we need some type of mechanism that will allow for resolution”.
He added the SMSF Association had been active in promoting a resolution that would operate using three guiding principles.
“We also need some ability to rectify in that scenario [of honest or inadvertent errors],” he said during his firm’s 2022 SMSF Day in Sydney today.
“We need to have a proportionate approach to the outcome because something as trivial as $100 or $1000 could have a significant impact when there is a general expense connected to all the fund’s income.
“The fact that the NALE rules all started back on 1 July 2018 means we need to ensure that any solution is retrospective to that point.”
To that end, he said he was positive about the government’s future approach to the provision.
“I think the real positive for [the arm’s-length shortfall] is that we do have uniformity in approach going to the government. The best way the government listens is when there is uniformity in approach,” he said.
“The fact that we have all sides of the fence from legal associations, accounting bodies, Australian Prudential Regulation Authority-regulated funds and SMSFs singing off the same hymn sheet means that I feel confident that we will get some resolutions by the time we get to 30 June 2023.”
