Reinforcing best compliance practices as outlined by the ATO can be the best assistance advisers provide in preventing SMSF clients from breaching the non-arm’s-length expenditure (NALE) rules defined in Law Companion Ruling (LCR) 2021/2 when acquiring assets from a related party, a technical specialist has said.
To this end, SuperGuardian education manager Tim Miller has challenged advisers about what client actions they are approving.
“Who is allowing their trustees or their clients to undertake activities like [related-party property acquisitions and transfers] on a non-arm’s-length basis in the first instance? Aren’t we already drumming into clients to act on a market valuation basis?” Miller said at a technical webinar he hosted yesterday.
“And aren’t we trying to encourage our clients to [do so and] ensure they obtain independent valuations [before they] enter into these transactions so that they don’t come across these issues?
“So shouldn’t we be taking that education approach first with our clients, saying if you don’t do things this way [and] if you don’t undertake a proper valuation and then transfer that asset at that proper value, then you risk the entire asset being taxed at 45 per cent when you [rent it out and then subsequently] sell it?”
He noted his experience servicing the sector has shown the majority of SMSF trustees are keen to act within the confines of the regulations and a simple message like this will be enough for them to obey the LCR 2021/2 rules.
Further, given this premise, he questioned whether the NALE provisions are in reality much too severe.
“In practice, aren’t [most] self-managed super funds dealing [with related-party transactions using] a market value transaction anyway?” he said.
“So [does this mean LCR 2021/2 is] taking a ‘sledgehammer to a walnut’ approach [to these transactions]?”
During the presentation, he also pointed out the impact the NALE rules can have on what are considered conventional SMSF practices.