COVID-19 may impact NALE

COVID-19 NALE non-arm's length expenditure

Work practices adopted subsequent to the COVID-19 pandemic may make breaches of the NALE rules more difficult to determine.

A legal expert has suggested the ability to determine if SMSF trustees have breached the non-arm’s-length expenditure (NALE) rules is more difficult now given the change in standard work practices as a result of the recent coronavirus pandemic.

“I think it’s going to be difficult, especially post-pandemic, in the way that people work and the way that they move between home and [the office] to distinguish between services that are performed [in a person’s] capacity as a trustee and things that are done [in that individual’s] own capacity,” Victorian Bar barrister Simon Tisher told delegates at The Tax Institute National Superannuation Conference held in Melbourne recently.

To illustrate his point, Tisher made reference to example 7 contained in Law Companion Ruling (LCR) 2021/2. In the example, a financial adviser called Levi often works from home using a computer and office equipment supplied by his advisory practice.

Levi also uses this computer to perform the bookkeeping and some investing activities for his SMSF without charging the fund a fee and is deemed not to have triggered the NALE provisions because the use of his business equipment is of an incidental nature and the services are being provided in his capacity as the SMSF’s trustee.

In particular, LCR 2021/2 states the conclusion is reached because he services his SMSF when he is not working or billing clients.

“[The example] does talk about [how] he’s not [performing services for his SMSF] while working or billing his clients, but I think that’s [now] going to be difficult to distinguish in practice,” Tisher noted.

“I mean I work from home generally one day a week, sometimes more, sometimes less, and I might work a bit and I might do some personal things. So there is this mix of work and play, especially since the pandemic, which I think could make this distinction difficult.”

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