The impending legislation regarding non-arm’s-length expenses (NALE) could contain guidance providing methods that will allow SMSF trustees to avoid breaching the final provisions, a technical expert has said.
“[An] area being considered here is how guidance can be provided on how the trustees can avoid breaches of the trustee remuneration provisions within section 17A [of the Superannuation Industry (Supervision) Act],” Smarter SMSF chief executive Aaron Dunn revealed.
“So this is important because we’ve got both [sections] 17A and 17B, and [section] 17B naturally looks at the fact that a trustee can charge [the fund] for particular services, but they do need to be suitably qualified, they need to be operating a business in that respect, they would be [holding] insurances, et cetera.
“Therefore, if we are relying on that section 17B, then we would be expecting to see some sort of commercial fee [being recommended to be] charged [in situations where NALE could be triggered].”
According to Dunn, consideration is also being given to include a de minimus rule in the final legislation whereby the amount relating to a potential NALE breach is assessed on a materiality basis.
“[This would allow us to] say if the [cost of the] services being provided are immaterial in the context of the overall expenditure in the fund, and the amount the fund is earning, can we kind of park that aside by virtue of a materiality arrangement,” he said.
“Or do we have some sort of safe harbour like we do with our PCG (Practical Compliance Guidance) 2016/5, which deals with related-party loans.
“[This would be] a similar sort of concept there where we maybe list certain thresholds that may apply as a bit of a guide and if we fall within those particular thresholds, then quite clearly we are saying that the fund is operating on arm’s-length terms and therefore the non-arm’s-length income provisions would not be relevant in that instance.”
He said these inclusions in the legislation would provide a more rationed and reasoned process compared to what was initially proposed in the ATO’s Law Companion Ruling 2019/D3.
