The finalisation of non-arm’s-length expenditure (NALE) within the ATO’s Law Companion Ruling (LCR) 2019/D3 is a key measure SMSF accountants and advisers should look out for in 2021, a technical expert has said.
Pointing to the ATO’s decision in June to not take action regarding NALE of a general nature that had a nexus to other SMSF income for the 2021 financial year, and effectively defer its final position for 12 months, Smarter SMSF chief executive Aaron Dunn said the measure was one likely to shape the SMSF space over the coming year.
“One of the most important measures that we’re currently still waiting on that is impacting many of you who have SMSFs as accountants or financial advisers is the finalisation of LCR 2019/D3 and, in particular, the way in which the ATO is going to deal with NALE where it is general in nature and connects itself to all of the ordinary and statutory income of the fund,” Dunn said today during a Smarter SMSF webinar.
“In essence we have been waiting on the ATO to finalise this. They did recognise that COVID-19 has played a role in its delay. They have also recognised within the Practical Compliance Guidance (PCG) 2020/5 that they are looking at potential ways in which they can deal with this one specific issue, that it is only a small part of a bigger ruling but has become the most important part that needs to be resolved.”
In September, the ATO noted it was in the process of finalising content for draft LCR 2019/D3, which had been delayed due to the impact of the COVID-19 pandemic.
“The final ruling will provide further clarity around our position on the application of the non-arm’s-length income provisions to NALE of a general nature,” the regulator said.
It also confirmed SMSF auditors would not be required to amend their opinion in part A of their independent auditor’s report where the compliance approach for NALE in PCG 2020/5 applied.