The ATO has reminded SMSF auditors that while it will not be taking any action on non-arm’s-length expenditure (NALE) issues it identifies within a fund until 2022/23, they are still required to raise these issues within the independent auditor’s report (IAR).
The regulator highlighted its transitional compliance approach, as set out in Practical Compliance Guideline (PCG) 2020/5, had been extended to include the 2022 income year, as well as the income years from 2018/19 to 2020/21.
“The extension has been provided while we finalise Draft Law Companion Ruling (LCR) 2019/D3 Non-arm’s length income – expenditure incurred under a non-arm’s-length arrangement,” the ATO stated in an update on its website, referencing a change it had previously announced in late March.
It also reiterated that for SMSF trustees and members no action would be taken, but SMSF auditors still needed to report any issues they may identify in the current income year.
“As outlined in PCG 2020/5, we will not allocate compliance resources to determine whether the income of a complying super fund is non-arm’s-length income (NALI) where the fund incurred NALE of a general nature that has a sufficient nexus to all ordinary and or statutory income derived by the fund,” it said.
As a result of this extension, the ATO informed auditors “you do not need to modify your opinion in part A of the IAR for the income years where the ATO’s transitional compliance approach in PCG 2020/5 applies”, but this would not apply where NALE was of a specific nature.
“You will still need to consider modifying your opinion in part A of the IAR where the fund incurred non-arm’s-length expenditure that directly related to the fund deriving particular ordinary or statutory income as the compliance approach in PCG 2020/5 does not apply,” it said.
The ATO said it will let auditors know when the content of draft LCR 2019/D3 has been finalised and what the ruling means for them.
