The ATO’s revised draft law companion ruling (LCR) on non-arm’s-length expenditure (NALE) and its impact on internal arrangements needs to be clarified in order to avoid giving rise to potentially bizarre scenarios for accountants and financial planners with their own SMSFs, an SMSF expert has said.
SuperConcepts technical services and education general manager Peter Burgess said the ATO’s revised draft LCR placed accountants and financial planners who had their own SMSFs in a potentially difficult position.
“[Previously] if trustees are performing their own bookkeeping services and they’re not charging their fund for that, that’s okay. That won’t invoke these new provisions,” Burgess said at the Chartered Accountants Australia and New Zealand 2019 National SMSF Conference in Sydney today.
“However, the ATO has just released a revised draft ruling and in this ruling they’ve punched a bit of a hole in that. They’ve said, yes, that is the case, as long as [trustees] are performing that [bookkeeping] activity in their capacity as a trustee.
“If they’re actually doing that activity in the capacity of an individual, then it’s different.”
He highlighted the indicators of individual capacity provided by the ATO, including the use of equipment and other assets of the business, a licence to provide activity and whether the activity is covered by an insurance policy relating to the business.
“This is very relevant to accountants and financial planners who have their own SMSF and are performing activities for their own fund and not charging their fund or charging a reduced fee for their fund,” he noted.
He pointed out the difficulty accountants might have when trying to differentiate between bookkeeping activities performed in the capacity of a trustee and those performed in the capacity of an individual.
“Of course, this gives rise to some difficult scenarios, some bizarre scenarios. If I’m a registered tax agent and I have a SMSF and I work for an accounting firm, if I work on my financial statements or I lodge my return during my lunch break at work using my office computer, then on face value here it looks as if I’m going to have to charge my fund an arm’s-length expense for doing that,” he said.
“But if I do it at home, using my home computer, not using my registered tax agent number, then I don’t have to charge my fund.”
He also pointed to similarly unrealistic changes to limited recourse borrowing arrangement rules that were introduced in 2010 before the ATO updated them to provide a more workable solution.
“In other words, [the ATO] introduced some wriggle room into this new legislation to make what was an impractical piece of law practical,” he said.
“I think we’re going to need a similar approach here. One solution is to define what we mean by a trustee service and we carve these out from this provision so we don’t get into this argument about what resources are material to the service.”