The application of non-arm’s-length expenditure (NALE) provisions to property acquisitions by SMSFs is an example of regulating for worst-case scenarios due to some funds breaching the in-specie transfer rules, according to a technical expert.
SuperGuardian education manager Tim Miller said the key issues related to the acquisition of business real property were contribution caps and acquisitions from a related party and were outlined in the ATO’s SMSF Ruling 2010/1, and these interacted with the NALE provisions as well.
“One of the key considerations of the NALE provisions is in-specie transfers,” Miller said during a recent webinar.
“The provisions have used simple examples where if you are acquiring property and you pay an amount that’s less than the market value and choose to treat the rest as an in-specie transfer, then that can be considered as a NALE event because you haven’t paid full market value for it.
“This is in contrast to identifying that the SMSF was going to acquire X amount of the property and a member was also going to contribute X amount of the property and treating those as two distinct transactions within the one transaction. That’s going to be okay.
“We have seen this conjecture around in-specie transfers, where somebody says I’m going to transfer the property and does not contemplate the valuation side of things and some SMSFs have not got to the point where they consider all that sort of stuff.
“So, now we are regulating for the worst-case scenario.
“We are regulating for those that should be captured for not following the rules that have been in place and have been long-standing rules within our industry for a long time now.
“It has become more because we now get these NALE provisions in place to eradicate the part of the industry that we have all been trying to eradicate and that is problematic for all of us.”