SMSF trustees who are providing services to a unit trust in which their fund has invested may be breaching the non-arm’s-length expenditure (NALE) rules and may benefit from outsourcing tasks to prevent this, an SMSF lawyer has advised.
DBA Lawyers senior associate Shaun Backhaus said most SMSF trustees understand that under the ATO’s Law Companion Ruling 2021/2 they can provide services to an SMSF if they are carried out in their capacity as a trustee, and these will not be considered as NALE unless they are carried out in an individual capacity.
Backhaus noted it was also common for an SMSF to invest in a unit trust for the purpose of property development and for an SMSF trustee or member to be a director of the corporate trustee of that unit trust and take action on behalf of that trust.
“Some of the things people do include are dealing with architects, engage with counsel, oversee development and project manage. They might even deal with the leasing of the property if it is in the commercial space rather than use a real estate agent,” he said.
“These sorts of things can happen and that is someone doing something often for no pay and there is no ability, as there is under section 17A [of the Superannuation Industry (Supervision) Act] that says you can’t charge and they don’t apply at the unit trust level.
“It is unclear how far those services will extend before you’re going into something that’s not a trustee service and has caused an arm’s-length expenses problem, which flows through to the super fund.
“If at all possible, you could engage people to do these things rather than having someone do them for free.
“This is a sleeper issue because there are plenty of people who have been involved in developments in the past and know what they’re doing so they can do it themselves.
“But in regards to the costs, if they were not doing it, the unit trust would have to pay someone to do it and I think you could be running into problems with this being an arm’s-length expenses problem for the fund.”
