The ATO’s amended stance on non-arm’s-length income (NALI) to include cost savings means advisers must now perform a more comprehensive analysis of certain expenses an SMSF incurs to avoid the associated income being taxed at the highest marginal tax rate, a technical expert has said.
SMSF Blueprint founder Julie Dolan used the example of a builder performing work on a property held within an SMSF to illustrate the point to delegates at the recent 2018 Self-managed Independent Super Funds Association Annual Forum in Melbourne.
“It was quite common where there would be an agency agreement between the builder and the SMSF allowing the builder to go and get supplies on behalf of the SMSF using the funds from the SMSF and get the builder discount. Making sure it was structured properly, that was fine,” Dolan said.
“That would potentially fall within NALI now.
“So it’s not just your standard reduction in an expense, or no expense; you actually have to think it through further in the situations your trustees are doing with their fund to make sure basically every part of the transaction is at arm’s length and is substantiated, so documented evidence is key.”
She added additional measures to prove the commercial nature of other services perhaps performed by trustees of the fund in a professional capacity will also be required now.
“Again if the trustee is a builder and in relation to the SMSF the trustee, in this builder role, wants to do some renovations to a property or whatever, he can do that but it must be at arm’s length,” she said.
“Once again at arm’s length to substantiate the situation you may need to go out and get other tenders and you will need to have that evidence and support to show that it is actually an arm’s-length transaction.”