The draft guidance on the operation of the non-arm’s-length expenditure (NALE) lacks firm advice on how smaller super funds, such as SMSFs, can set an appropriate price for income and expense items that may be charged on a non-commercial basis, according to a number of industry bodies.
Chartered Accountants Australia and New Zealand, CPA Australia, the Financial Advice Association Australia, Institute of Financial Professionals Australia, Institute of Public Accountants, National Tax and Accountants’ Association and SMSF Association made the claim regarding the need for better guidance in Law Companion Ruling (LCR) 2021/2DC in a submission to the ATO.
In calling for more guidance, the joint bodies noted the explanatory memorandum to the Treasury Law Amendment (2018 Superannuation Measures No 1) Bill 2019, which introduced the non-arm’s-length income regime, highlighted the difficulties in setting these figures.
“It can be difficult to determine an exact price that is ‘non-arm’s length’. An ‘arm’s-length’ price may be accepted to fall within a range of commercial prices,” the explanatory memorandum said.
However, the industry groups highlighted this sentence was not found in the explanatory memorandum to the Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Bill 2023, which contained the most recent amendments.
“We are concerned that the ATO remains silent on the fact that it is ubiquitously difficult to definitively determine what an arm’s-length price or value might be and that a range will be appropriate,” the bodies stated in their submission.
“The LCR would be improved if this point was acknowledged. The LCR should also contain guidance on how small super funds may acceptably determine the lower and upper bounds of appropriate commercial prices and how they may then decide on an appropriate price or value to apply in a particular circumstance.”
The submission noted this issue extended to asset values as well, despite the ATO providing guidance for determining a market value for assets held in an SMSF.
“It is our understanding that many valuers avoid providing a pinpoint value, for example, for fear of being sued and increased professional indemnity insurance premiums,” it said.
“We would therefore like to have confirmation that the ATO do accept that there can be considerable range in market values and that this is especially the case where there is no mandatory requirement for a registered valuer to be engaged.
“It is unreasonable to expect taxpayers to engage a professional valuer who only reports a range of market values – between a lower and higher value range – and then expect a taxpayer to gather evidence to establish and support their pinpoint value within that range.”
