Trustees will need to be cautious as to what maintenance work they do with their own hands on fund assets under the non-arm’s-length expenditure (NALE) provisions as the ATO has not indicated what it considers to be acceptable limits, an SMSF technical expert has claimed.
SuperConcepts SMSF technical and private wealth executive manager Graeme Colley said the absence of a de minimus rule in Law Companion Ruling 2021/2, which sets out the operation of the NALE provisions, made it difficult for SMSF trustees to know the limits on the work they can do on assets in their capacity as a trustee.
“There is provision in section 17b of the Superannuation Industry (Supervision) Act that allows for a trustee who is qualified to charge an arm’s-length rate for work undertaken for the SMSF,” Colley said during a recent webinar.
“What if I am a trustee and I decide to paint a home unit my fund owns, and I am not a qualified painter? If I do that free of charge for my SMSF – as I can’t be paid as a trustee under section 17b – is this work a trustee would ordinarily undertake in regards to that particular activity? You would probably say it is not.”
He added further clarification was needed as to how this type of work would be treated under the non-arm’s-length income (NALI) and NALE provisions.
“We don’t have any evidence and we might need a tribunal decision regarding work by a person who is not qualified and how that might impact upon on the sale of the unit or the expenses in relation to the unit and whether it will be regarded as being on an arm’s-length or non-arm’s-length basis,” he said.
He also noted setting a limit on the value of any work would assist trustees in the maintenance of their assets.
“The degree of the work will be important too because if I was a qualified painter and I did substantial work as part of a renovation of the property and was paid for it or if I did insubstantial work, such as painting some damage the tenant did because I had the paint in the shed, does that cause an issue in relation to NALI?” he said.
“It is a pity the ATO in its ruling does not have a de minimus rule that states minor repairs of $1000 or so, if there was no payment for that, would not have an impact on NALE and NALI, and that type of limit would be worthwhile to take into account.”