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ATO, Regulation

ATO must deliver NALI guidelines

Industry needs guidance on difference in internal transactions under NALI.

The ATO should provide the industry with official guidelines spelling out the difference in internal transactions under the new non-arm’s-length income (NALI) rules once they are passed into law, a technical expert has said.

At the recent Chartered Accountants Australia and New Zealand National SMSF Conference 2018 in Melbourne, SuperConcepts technical services and education general manager Peter Burgess said: “The explanatory materials that came out with this legislation talked about internal transactions so it seems to be the intent not to capture internal transactions with these provisions.

“So if it’s the trustee mowing the lawn of their investment property and they don’t charge the SMSF for that, it’s okay? But if it’s a related entity perhaps who’s providing those services, that’s not okay?

“We’re not clear where the line is going to be drawn.”

Burgess said as the concept of internal transactions was not well explained in the explanatory materials, the ATO will need to step in with specific guidelines.

“This reminds me of the limited recourse borrowing arrangement days where they tightened the rules back in 2010 and the ATO had to come out with guidelines around what constitutes a repair and what constitutes an improvement, because it matters under the rules,” he noted.

“I suspect we’re going to have a similar situation here – that when this measure goes through, the ATO is going to have to provide guidelines and [list] all transactions that will be caught by the provisions and other transactions that are immaterial or incidental will not be caught by the provisions.”

The Treasury Laws Amendment (2018 Superannuation Measures No 1) Bill, which is currently still in the Senate, looks to amend the NALI provisions to ensure complying super entities cannot circumvent the NALI rules by entering into schemes involving non-arm’s-length expenditure, including where expenses are not incurred.

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