The ATO has already given an indication of how the non-arm’s-length expenditure (NALE) rules will be applied to general expenses through two separate private binding rulings it has issued recently and how potentially difficult it is to anticipate when these provisions will actually be triggered.
“One [private binding ruling was where an accountant used the practice’s] equipment, used their tax agent registration and lodged the return for the super fund [without charging] any fees for [the work],” Smarter SMSF technical and education manager Tim Miller told delegates at the ASF Audits Technical Seminar 2023 held in Adelaide last Friday.
“But [the work was performed] out of hours, [the practitioner] said they planned and have always considered that they were doing it in their trustee capacity.
“And the tax office has said that’s fine.”
The second private binding ruling involved an accountant who exclusively prepared and lodged tax returns for his family and the family entity. He also prepared and filed the annual return for his own SMSF. In addition, he performed the required annual return work for another family member’s SMSF without charging a fee for those services.
“Here the tax office deemed in that instance it would be NALE,” Miller revealed.
“In both examples the work was done from home, [also the work was performed] conceptually out of work hours, but because [the practitioner in the second scenario] didn’t provide that [service] to the public, then that seems to have been what triggered the inclusion of that [activity] as a non-arm’s-length expense.”
He observed there is not a lot of difference in the two situations, but identified one element that allowed the SMSF in the first instance to avoid being caught by the NALE provisions.
“I think the difference was that the first [practitioner] documented [what they had done]. And they documented that they were doing the work in their capacity as trustee of the fund and that they were using their work equipment out of [business] hours because it offered time and cost efficiencies to the superannuation fund,” he said.
“And so, particularly when we are looking at discounting policies and the like, or whether you’re working in your individual or trustee capacity is going to come down to how you document it.”
