Administration, ATO

Advisers warned to hold off on servicing own funds

SMSF non-arm's length income

SMSF advisers should wait for clarification as to whether managing their own fund's affairs will be subejct to changes to the non-arm's length income rules.

SMSF advisers and accountants should hold off on managing their affairs inside their own funds until the ATO has reissued guidance on whether the activities will fall under changes to non-arm’s length income rules, an SMSF lawyer has advised.

Addressing a recent seminar in Sydney, Shaun Backhaus of DBA Lawyers pointed out a Law Companion Ruling (LCR) issued by the ATO in late 2018 seemed to indicate internal activities would not be considered as subject to non-arm’s-length income.

Backhaus pointed to the explanatory memorandum (EM) that accompanied the LCR, which said: “The requirement that parties not be dealing with each other at arm’s length means that the non‐arm’s-length income rules do not apply in respect of a superannuation entity’s arrangements that are purely internal. This is because an entity’s internal functions are not undertaken with another party on any terms, non‐arm’s-length or otherwise.”

He said that while the EM gave examples of internal activities that were conducted by SMSF professionals in their capacity as a trustee, there was some confusion as to where NALI did or did not apply.

This ambiguity was raised prior to the release of the LCR by DBA Lawyers director Dan Butler when proposed NALI changes were included with the Treasury Laws Amendment (2018 Superannuation Measures No 1) Bill that made its way into the Senate before lapsing when parliament was dissolved ahead of the May federal election.

“Can an accountant who has their own fund do their own statements and tax returns? The ruling gave an example of an accountant who ran a business and did the accounts, but the way it was worded made it sound like she was a sole practitioner,” Backhaus said.

“If you were an accountant at a firm, it is likely to be a partnership, or discretionary trust, or entity that holds the assets. If you go in and use software and staff to do the work, are you doing it?

“The fund has access to resources which it would not have otherwise, it is the firm’s, and there are non-arm’s-length things happening there.

“People made submissions trying to get the ATO to expand on it, but I would not be doing anything along these lines until the LCR is reissued and we can see if there is more guidance.”

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