Contributions, NALI/NALE

Asset transfers hang on final ATO decision

Assets transfer contribution

SMSF members moving assets into their fund as a partial non-concessional contribution should wait until the ATO’s final decision as to whether the move will fall under NALI provisions.

SMSF members who want to transfer personally held assets into their fund as a partial off-market transfer and non-concessional contribution should revise those plans until a final ruling has been made by the ATO regarding the non-arm’s-length status of the contribution.

Heffron SMSF technical and education services director Leigh Mansell said the historical practice of transferring personally held listed shares or units in managed funds into an SMSF via a partial acquisition by the fund and a non-concessional contribution (NCC) by the member may run counter to the ATO’s approach to non-arm’s-length income (NALI).

Mansell pointed out the ATO’s position on NALI and non-arm’s-length expenditure (NALE) was final, but its position on the status of an NCC, in regards to NALI and NALE, when transferring an asset into an SMSF was still only a draft ruling.

“This is a ‘heads-up’ issue because the Law Companion Ruling (LCR 2021/2) is the ATO’s approach and how they are moving forward with acquisitions that are less than market value,” she said during a recent webinar.

“If we think about what your clients may have done, some might have transferred assets into the fund in the past partly by way of acquisition and contribution, so we have things that are already in the SMSF system.

“So, we are trying to identify if those assets were acquired at less than market value, based on the LCR, have we also got a valid contribution or not, and this relates to the draft ruling [made to Taxation Ruling 2010/1] on contributions.”

She pointed out that while the LCR came into effect from the 2019 financial year, the draft amendment and ruling to TR2010/1 did not have a start date, resulting in uncertainty about past asset transfers.

“The draft ruling on contributions was released for consultation, which ended at the end of August, and part of the feedback the ATO was seeking was what should be the start date of this amended ruling,” she said.

“We might end up with enough people suggesting they have clients who are already caught within this nexus and could we start the ruling in the future and maybe some of those contributions recorded as such won’t get caught up as non-contributions.

“This is a watch-this-space issue. The draft tax ruling on contributions may apply from 2018/19, or the present, or a future date and if the latter, that means everything in the can that has been recorded as a NCC will stay that way.”

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