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ATO, Superannuation

Personal use provisions can address NALE costs

personal use NALE

Existing tax rules around the personal use of business resources could offer a simple solution to non-arms length expenses (NALE) inside an SMSF.

The costs related to non-arm’s-length expenses (NALE) could be set under a ‘goods for personal use’ approach and capped at an annual amount, according to an SMSF technical expert.

Speaking at the Institute of Public Accountants National Congress in Adelaide today, SuperConcepts SMSF technical services executive manager Mark Ellem said the practice was commonly used by small business food providers, such as bakers and restaurants, and allowed for a component of a business’s resources to be used for private purposes.

“The goods for own use provisions under current tax law allows for an allocation of costs for personal use and an allocation of costs for business use,” Ellem said.

“In the SMSF context, this could be applied as an allocation to costs related to being a trustee and costs related to being a businessperson, such as an accountant, adviser or real estate agent.”

He said the ATO may be looking at NALE from the point of view of whether a person was using the resources of their own business, which is then claimed as a tax deduction, while tax law only allowed a claim for a deduction to the extent to which costs are incurred in earning income.

“The solution to this question would be to look at the goods for own use provisions and as long as the costs claimed are not more than a certain amount, then they should be considered to be okay,” he said.

He added this approach would also deal with issues such as professional indemnity insurance, which often covered financial advisers and accountants when they provided services without charge and would be captured under the draft NALE regulations.

“Some policies will cover all types of work, even that conducted at a lower cost or with no charge. So, how could I ever do my own SMSF annual accounts and return without using at least one asset, being the PI cover? Do I take out new cover that says I am not covered if I do something for free?” he said.

He pointed out the NALE provisions were only part of a draft ruling and he expected the issue to be resolved before a final ruling was released.

“We are hopeful when the final version of this comes out there might be a solution because the submissions that have gone are saying we need to be able to distinguish between when an individual is providing a service in their capacity as a trustee and in their business,” he noted.

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