Trustees who undertook certain work on their fund during the 2024 financial year, such as administration services, must be sure they did so on a commercial basis as the new rules surrounding non-arm’s-length expenditure (NALE) in regards to general expenses will not apply, an SMSF technical specialist has noted.
Smarter SMSF head of education Tim Miller noted while the rules regarding the operation of non-arm’s-length income (NALI) apply from 1 July 2018, there was a gap in the treatment of general expenses under the NALE provisions between the end of the ATO’s compliance relief period and the start of new rules on 1 July of this year.
“We had our compliance relief [via ATO Practical Compliance Guideline 2020/5] on the general expenditure stuff, which expired on 30 June 2023,” Miller said during a webinar presented by SuperGuardian today.
“The new legislation is effective from the 1 July 2024 and it applies to expenses that have been incurred all the way back to 1 July 2018.
“So, we have got this 12-month gap, which is the last financial year, where if we weren’t applying discounting factors correctly or we weren’t following through the process to make sure we were trying to deal on an arm’s-length basis on all transactable events, we might find there are some NALE general expenses that get captured in that period.
“If that occurs, do people know how deal with it from their fund’s point of view?
“I don’t think NALE is going to create too many issues from a general expenditure point of view, but take the opportunity to drill down with your clients and highlight they can’t just do things for their fund unless they have done research as to whether they are doing it in their capacity as trustee or in some other form or capacity.”
