Documentation, NALI/NALE, SMSF

Zero fees a NALE trap

SMSF fees zero NALE

SMSF practitioners bundling service fees into other costs paid by a trustee will raise questions as to what has been charged and may lead to the ATO viewing that charge as a NALE breach.

SMSF practitioners should be clearly stating what fees they are charging a fund and avoiding the appearance of zero fees being paid to avoid the ATO viewing those fees as a contribution or non-arm’s-length expenditure (NALE), according to an SMSF specialist.

SMSF Alliance principal David Busoli said despite there being no shortage of commentary concerning NALE related to general fund expenses that could taint SMSFs, he recently viewed the accounts of a fund that had been administered by the same accountant for many years and appeared to have no fees charged to it at all.

“No administration fees had been charged to the fund. Instead, I presume, the fees that would have been charged were loaded onto the fees payable by an associated tax entity that was paying a higher tax rate,” Busoli said, noting this arrangement opened the fund up to a number of enforcement actions.

“Should the ATO investigate, there are a number of possible outcomes. Some are more severe than others.

“If the accountant had issued an invoice for the fund that was paid by the other entity, then this would constitute a deemed concessional contribution to whomever the trustee decided.

“If no invoice had ever been issued regarding the fund, the tax deduction taken by the other entity for the fees attributable to the fund would be disallowed – plus penalties of course. Deemed concessional contributions might still be invoked.

“Most worrying, however, is the possibility that the ATO might apply NALE to the whole fund, given that this is a general expense.”

He added the issue could have been avoided by clearly stating what the fee was each year.

“There would not be an issue if the accountant had charged a ‘reasonable’ fee, with considerable leeway as to what constitutes ‘reasonable’, but to charge no fee at all is just being foolish,” he said.

Copyright © SMS Magazine 2024

ABN 43 564 725 109

Benchmark Media

Site design Red Cloud Digital