The proposal in the recent budget to reduce the non-arm’s-length expenditure (NALE) tax penalty has not addressed how SMSF trustees will be able to determine what an accurate cost for any general expense will be, an issue needing clarification before 30 June, an SMSF technical expert has noted.
SuperConcepts SMSF technical and strategic solutions executive manager Phil La Greca said the shift from charging funds a tax that was five times the level of the general expenditure breach to two times that level did not address how NALE would be determined and by whom.
“The biggest problem with this measure is determining what the actual expense is meant to be. That is going to be the challenge for the industry because how do we know what the expense should have been,” La Greca said during an online post-budget presentation today.
“How will we know what the figure should be versus what was charged? What is that figure when there is no charge listed?
“It will be interesting to see how this is set as we don’t know where we are in regards to benchmarks or what will be the process to apply them.”
He also questioned whether the ATO or SMSF auditors will determine what an acceptable general expense figure is.
“The ATO may be able to do some of this because most of these general expenses, such as operating, accounting and administration expenses, are fairly well known,” he said.
“The ATO can benchmark those and they already do, so they know what the average and the median expenses are at different fund band sizes, so perhaps we will get a table.
“Auditors may also say ‘this fund is in this category and should have at least this in expenses if it’s an unrelated-party service provider’, so that is how it is probably going to work because if auditors are going to be signing off the tax calculations on the tax return, they will probably ask these things.”
