The proposed non-arm’s length expenditure (NALE) rules dealing with an SMSF’s general expenses are going to increase the responsibility of auditors with regard to discounted administrative services, a technical manager has predicted.
“[Discounted SMSF administrative services] most certainly need to be documented and the auditor is going to be looking for it. I said this was a compliance burden on self-managed superannuation funds [but] this is stuff that the auditor is potentially going to have to check for,” Heffron head of education and content Lyn Formica noted during a recent practitioner webinar.
“NALE and non-arm’s length income, is a Part A [qualification] issue. It’s all about whether the financial statements represent a true and fair view [that can be covered by the] management letter,” she explained.
“It’s not a SIS (Superannuation Industry (Supervision)) compliance breach, it’s not a Part B [qualification] issue but it will be interesting to see what instructions the ATO gives to auditors around this.”
She pointed out the proper procedures regarding the knowledge and documentation of discounted SMSF administrative services are not necessarily common place.
“When I’ve been presenting in different accounting firms and I talk about discount policies one partner will say ‘oh yeah we’ve got a discount policy that applies to [certain individuals]’ and someone else in the room will say ‘I didn’t know we had a discount policy’,” she said.
“So sometimes it’s not a very well communicated discount policy.”
Formica also reminded practitioners the new NALE rules governing general expenses will only apply to service provided from 1 July 2023, the date that marks the end of the ATO’s approach of not allocating any compliances resources to enforce these rules.
“[But] it doesn’t matter the [financial] year to which that service relates. It’s just whether the service was provided after 1 July 2023,” she confirmed.
With regard to the NALE rules dealing with situations where a specific asset has been acquired involving a discount she stressed the ATO had not adopted a more relaxed compliance approach to these circumstances and any transactions executed after 1 July 2018 incorporating this element could constitute a compliance breach.
