Property, Tax

COVID-19 NALE impact still possible


SMSF practitioners should be mindful of the link between COVID-19 rent relief deferrals and non-arm’s-length expenditure (NALE).

SMSF practitioners should be aware of the impact of COVID-19 rent relief deferrals on non-arm’s-length expenditure (NALE) regardless of the ATO’s recently stated stance, a technical specialist has warned.

SuperGuardian education manager Tim Miller noted that while the ATO had indicated it would not make reference to the pandemic in the final version of Law Companion Ruling (LCR) 2019/D3 as to how the regulator would be dealing with NALE, SMSF practitioners should not assume non-arm’s-length income and NALE for the 2020 and 2021 financial years would not be impacted by COVID-19.

“We have to be mindful that at some point rents have to start going back up to representing commercial rents, particularly if we’re dealing with related parties. We need to be on top of that as soon as we can,” Miller said during a SuperGuardian webinar today.

“The ATO has said that COVID-19 won’t be a trigger or won’t be the highlighted issue within the finalised LCR, but that doesn’t mean it’s going to be a compliance issue to not have to worry about moving forward.

“I suspect as we move out of the compliance shelter provided by COVID-19, the ATO may take a different view on some of these issues.”

The ATO released a legislative instrument determination in November addressing the issue of rent relief deferrals granted by SMSF landlords to related-party tenants in response to coronavirus-related financial hardship.

Last week, Smarter SMSF chief executive Aaron Dunn said the finalisation of NALE within LCR 2019/D3 was a key measure SMSF accountants and advisers should look out for in 2021.

In September, the ATO confirmed SMSF auditors were not required to amend their opinion in part A of their independent auditor’s report where the compliance approach for NALE in Practical Compliance Guideline 2020/5 applies.

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