The ATO’s recently released Law Companion Ruling 2021/2 governing non-arm’s-length expenditure (NALE) has stipulated the approach in determining if a service fee charged by a trustee to the fund will be considered of a commercial nature.
“For an SMSF in relation to ascertaining whether there is an arm’s-length price being paid, [the ATO] will simply look at whether the parties to the transaction, which will involve the SMSF and the trustee, have made a reasonable attempt to determine an arm’s-length expenditure amount for the services provided to the fund,” Accurium head of education Mark Ellem explained during a recent technical webinar.
“So, for example, that [may involve] looking at current commercial policies. [So] if it’s in relation to charging your fund for accounting and tax agent services, [it means] looking at what you’re currently charging arm’s-length clients for that type of service and using that as a benchmark for the fee you’re charging your fund for that service.”
According to Ellem, trustees need to be continually mindful of the interaction between the Superannuation Industry (Supervision) (SIS) Act and the Income Tax Assessment Act regarding this matter.
“[SIS Act section] 17(b) says if you meet [the stipulated] criteria for charging your SMSF for non-trustee services, you can charge up to a commercial value. [This means] you can charge less than commercial value [if you wish],” he said.
“[So] you could [then] be complying with [section] 17(b) [of the SIS Act], but [still] end up giving the fund a non-arm’s-length expenditure issue and non-arm’s-length income (NALI) resulting from that because you are charging less.”
He assured trustees if they are prohibited from charging a service fee to the fund under section 17(a) of the SIS Act, they will not risk being captured by the NALE and in turn the NALI rules.