NALE challenges accepted practices


All relationships with SMSF service providers considered conventional in the past may now come under scrutiny due to the LCR 2021/2 NALE rules.

The catch-all nature of the provision regarding other administrative costs included in the non-arm’s-length expenditure (NALE) rules as detailed in Law Companion Ruling (LCR) 2021/2 could lead to all conventional relationships with SMSF service providers being scrutinised, a technical expert has warned.

“[Effectively] this has an impact on [the SMSF’s dealings with] fund administrators [and] this has an impact on relationships with accountants,” SuperGuardian education manager Tim Miller told attendees at a technical webinar he hosted today.

“It [also] has [the potential to have] an impact on the relationship with our stockbroker or insurance broker because [we have to ask] where do brokerage fees sit in among [administration costs]. Are they investment fees or are they general expenses?

“If there is a capacity to discount brokerage, [and] we already know through the history of time that there has always been that capacity to discount commissions on insurance offerings, [we have to ask] are those discounted premiums or discounted commissions on insurance proceeds in line with commercial practices and are they being provided to all parties.

“So all of these [practices] that we have assumed are okay historically now become relatively critical [with regard to NALE] in the ongoing administration side of the fund.”

According to Miller, this catch-all provision in LCR 2021/2 could have even greater implications for SMSFs that hold property but do not completely outsource the management or upkeep of those assets to an external party.

“If you have any skill set in performing those services yourself, or indeed are licensed to perform those services, then you open up the can of worms of section 17B [of the Superannuation Industry (Supervision) Act], the remuneration issue, [and] you open up the can of worms of what is a contribution from a [property] improvement point of view,” he noted.

“So to me as much as this ruling has got our backs up about accounting and admin fee discounting, given the proportion of self-managed super funds that invest in property and the number of questions we get on a weekly basis about trustees performing some form of task on their investment property, that to me is going to be the critical point that we need to be mindful of.”

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