Whether a free service performed by an SMSF trustee is captured under the non-arm’s-length expenditure (NALE) rules cannot necessarily be determined at face value and requires greater analysis before a definitive position can be arrived at, a technical specialist has said.
“You have to peel layers off and drill down [to understand if a scenario is captured by NALE]. You have to ask yourself a question and then ask yourself another question and keep going through [the situation] until you can be satisfied you’ve ticked all of the elements [satisfying compliance with NALE] off,” Smarter SMSF chief executive Aaron Dunn advised delegates during a technical webinar held last week.
To illustrate this point, he used an example of where a financial planner, James, is a trustee and formulates an investment strategy for his SMSF without charging a fee. In doing so the individual uses business equipment infrequently, but uses the Hub24 platform as part of the process, resulting in an administration fee being charged to the fund from the platform provider.
According to Dunn, on the surface, the financial planner can work on the SMSF investment strategy without charging a fee.
“Just because he’s a financial planner it doesn’t prevent him from acting in a capacity as trustee to meet the statutory requirements of SIS (Superannuation Industry (Supervision)) Reg 4.09. No problem there whatsoever,” he said.
Further, he pointed out using the business equipment sporadically also did not mean he would fall foul of the NALE rules.
However, he identified the use of the Hub24 platform as where a NALE issue might occur. This is because the financial planner seems to have performed activities pursuant to his financial advice business licence and this activity could not have taken place if the adviser did not hold an Australian financial services licence (AFSL) or was not an authorised representative of a licensee.
“So James does not have access to Hub24 as a platform generally without holding that licence or without being an authorised rep of a licensee that has that [facility] on an approved platform because as far as I know Hub24 doesn’t have a retail option,” he noted.
“So while generally we can have James prepare an investment strategy for his fund, he wouldn’t have access to Hub24 without acting as a financial planner that requires him to perform activities pursuant to holding the relevant licence.
“As a result, an arm’s-length fee would need to be charged over and above the Hub24 platform fee, otherwise the NALI (non-arm’s-length income) provisions [via the NALE rules] could apply.”
