SMSF trustees will need to seek further clarification from the ATO as to whether any work they undertake for a unit trust inside their fund will not be considered non-arm’s length expenditure (NALE) under the recently finalised Law Companion Ruling (LCR) 2021/2, according to an SMSF lawyer.
DBA Lawyers director Dan Butler said there is a significant lack of appropriate information on trustees’ capabilities in a unit trust when it comes to determining NALE in the LCR.
Butler noted a trustee, acting in that capacity, cannot receive any remuneration under the Superannuation Industry (Supervision) (SIS) Act, but the relevant sections did not extend to work related to a trust.
“Section 17A and 17B only applies to an SMSF. The ATO’s analysis in its LCR only applies to an SMSF,” he said.
“Therefore we need to be careful. It would be nice to have clarification on this point, but there is none at this time.”
During a webinar last week, he highlighted a page on the ATO website, titled “Public advice and guidance compendium”, from LCR 2021/2, which has advised people not to rely on the publication.
Under issues raised, the ATO compendium stated: “The draft ruling does not provide any examples where an SMSF trustee is assisting with managing the activities of a unit trust that owns real estate. We query whether these would be treated in a similar manner to the situation where the trustee provides internal or trustee-type services directly to a SMSF.”
The ATO, in its response in the same documents, said: “We consider the ruling provides sufficient guidance on the key principles to assist trustees to determine how the provisions apply.
“Trustees may seek certainty on their specific circumstance through the private ruling process.”
While noting the need for more information in regards to unit trusts, Butler noted sections 46 and 47 of the LCR, which outline the primary differences between a trustee and individual capacity, remained useful to ensure trustees acted in the right capacity.
“The ATO in working out whether you act in a trustee or individual capacity, in respect of an SMSF, may be useful background material,” he said.
“The ATO do recognise that a trustee has statutory fiduciary duties under the deed. [A trustee] may have special skills and knowledge, and they are generally presumed to be acting in their capacity as a trustee.”
