The ATO’s revised guidance regarding the operation of the non-arm’s-length expenditure (NALE) rules may require SMSF trustees to disclose more information around how a discount policy is applied to any costs borne by their fund, according to a legal firm.
DBA Lawyers lawyer Fraser Stead noted that in Law Companion Ruling (LCR) 2021/2DC, discount policies were still an area of compliance for the ATO as businesses giving discounted services to an SMSF without a policy would give rise to NALE.
“The guidance is in paragraph 51 of the ruling where we do have some slight amendments to the wording about discount policies,” Stead said during a recent online presentation.
“That paragraph says a small fund might enter into arrangements where it receives discount prices. These arrangements will still be on arm’s-length terms where they’re consistent with normal commercial practices, such as an individual acting in their capacity as trustee being entitled to a discount under a discount policy where the same discounts are provided to all employees, partners, shareholders or officeholders.
“We think there might be some ambiguity with that last line about discounts provided to all employees. Does that mean it’s the same discount across the board?
“There is also an additional section here in this paragraph. It was previously included in example eight [of LCR 2021/2].
“Now it’s been expressly included in paragraph 51 and states the trustee of the fund should not be able to influence the discount policy.
“You might want to consider how you can demonstrate that an SMSF trustee can’t influence a discount policy for small firms.
“This could be particularly problematic where you only have a limited number of staff and does influence mean just the terms of the discount policy or setting up a discount policy in the first place.
“This is something to consider as it is still in the example, but it’s also been directly placed into paragraph 51 of the revised LCR.”
