The intention by the ATO to amend the rules governing the treatment of super fund contributions in order to make them align with the non-arm’s-length expenditure (NALE) provisions will have serious adverse consequences for some accepted SMSF practices.
The regulator is looking to make changes to Tax Ruling (TR) 2010/1 specifically with regard to the treatment of asset acquisition made at a discounted price.
“This has gone under the radar with the release of Law Companion Ruling 2021/2 because all the [NALE] focus was on that,” SMSF Association deputy chief executive and director of policy and education Peter Burgess told delegates at the industry body’s Technical Summit 2022 held on the Gold Coast last week.
“What [the ATO] has said here is if a fund acquires an asset at less than market value, then you can’t just treat the difference as an in-specie contribution. It’s quite common to see in the self-managed super fund sector the fund acquiring an asset using an acquisition and part in-specie contribution.
“So the ATO is saying ‘no, that is not an in-specie contribution, you’ve got a NALE problem’.”
Further, Burgess pointed out the proposed implementation method will make this change even more unpalatable for SMSFs.
“It seems the amendment is going to be backdated. So it’s going to apply to [transactions] that have happened in the past. [It means] not only have we had to treat [the shortfall] as an in-specie contribution in the past, because that’s what the ruling essentially used to say, we’re now going to have to treat the income [from the asset] as non-arm’s-length income,” he noted.
However, he acknowledged the regulator has offered a workable solution that will allow SMSFs to avoid triggering the NALE provisions in these situations in the future.
“[The ATO has indicated you can remedy this] in your sale contract. If you want to [make an] acquisition [that includes an in-specie contribution component], make it clear in the sale contract that’s what you’re going to do,” he said.
