A specialist lawyer has advised SMSFs to use a separate corporate trustee to act for the fund and warned that combining this role with other duties could lead to additional compliance risks.
DBA Lawyers director Dan Butler highlighted a conflict between a long-established tax ruling and the recently introduced non-arm’s-length expenditure (NALE) provisions as an example of the risks involved when a corporate trustee is used for an SMSF and a family trust.
In the scenario Butler described, the corporate trustee pays the annual Australian Securities and Investments Commission (ASIC) fee on behalf of the SMSF from the family trust’s bank account. However, he noted the ATO’s guidance is unclear on whether this payment should be treated as a contribution or NALE.
“There is quite a lot of confusion here. Certainly, a number of professional bodies are seeking further guidance from the ATO on this point. The correct answer depends. I think I know a lot about NALE and I’m not giving you a straight answer because this is quite complex,” he said during a webinar held by his firm last week.
“If you go to Taxation Ruling 2010/1, it’s definitely a contribution and therefore you should be able to rely upon the ATO ruling where it favours the taxpayer. However, under the [NALE] legislation, it is a saving of an expense, so is it a non-arm’s-length transaction?
“This issue about NALE reinforces the point which we have been saying for years, get a sole purpose corporate trustee.”
This confusion was shared by practitioners attending the webinar as a poll conducted by the firm to gauge how the transaction would be classified showed an almost even split in responses.
Butler added the uncertainty also applies to how the ASIC fee should be shared between the SMSF and any other roles the corporate trustee might hold, highlighting the challenge in determining a fair apportionment.
“Is [the ASIC fee for a special purpose company fee] of $63 something you would apportion to the fund or is it 50/50? Or would you not apportion it because it’s small beer? You see where I’m going, there’s a lot of confusion NALE has caused and you cannot get a straight answer,” he said.
“[The transaction] could be NALE, but if you document it as a contribution, one would think you should be fine and then rely upon the ATO ruling.”
