SMSF practitioners should be asking trustees what actions they undertake on behalf of their fund and compare them to what would constitute non-arm’s-length dealings to ensure they don’t breach the recently enacted non-arm’s-length expenditure (NALE) laws, a superannuation expert has noted.
Chartered Accountants Australia and New Zealand superannuation and financial services leader Tony Negline said the ATO has stated it would apply the NALE laws giving consideration to where SMSF trustees had made a reasonable effort to comply with them, but practitioners should be questioning what those efforts entailed.
“There is an ATO document which helps them administer the law called Practice Statement Law Administration 2012/5, which is all about what reasonable attempts someone has made to comply with the tax laws,” Negline said at Class Ignite 2024 in Sydney today.
“So what is a reasonable attempt? It is ‘any effort commensurate with the taxpayer’s knowledge, education, experience and skill’, but what are most taxpayer’s knowledge, skill, education and experience in relation to SMSFs?
“Now, if you run SMSF administration and you’re the tax agent, but other people are providing services, and you’re getting clients from elsewhere, how are you meant to know what the client is doing with the assets in the fund?
“It will become important to say: ‘Have you done anything in this fund that involves what you do on a daily basis through your education, training and experience?’
“My own fund just owns managed funds and listed securities, so is it worthwhile asking me that question? Let say I also own real estate, then the question is: ‘Have I done any substantial work on that asset in my fund?’
“You will need to ask trustees that type of question because if you’re doing work on SMSFs from other firms, how else are you going to find out?
“I don’t have a smart-aleck answer and I don’t think these are easy questions to answer in some situations, but in terms of NALE it’s going to be important going forward to ask and for auditors to be able to lock that down in representation letters and trustee declarations.”
