A key superannuation stakeholder has highlighted some potential issues contained in the ATO guidance about non-arm’s-length expenditure (NALE) in relation to work a trustee performs on an asset held in their SMSF.
Chartered Accountants Australia and New Zealand superannuation and financial services leader Tony Negline specifically made reference to example nine in Law Companion Ruling 2021/2.
In this example, Trang the plumber was deemed to have triggered the NALE provisions because she undertook a complete renovation of a bathroom and kitchen.
This renovation included scheduling time in her work calendar to do the work, using the tools of her trade to undertake all plumbing work on the renovations and engaging her employee to assist her on the job. Further, she did not charge the SMSF a fee for the work.
“That may or may not be the case. In the submission we made in relation to this ruling … we actually said to the ATO: ‘Well, we’re not entirely sure you’re correct here because there are a number of items that this particular case does not take into account,’” Negline told attendees of the SMSF Association Audit Day 2025 held online recently.
“It does not take into account that bathrooms obviously depreciate. The ATO allows depreciation over 40 years, the US Inland Revenue [Service] allows it over 25 or 27 years, when a property is rented out. So [bathrooms] obviously deteriorate and need to be replaced.”
According to Negline, the circumstances outlined should include examination as to whether any opportunity cost was involved in the activity so as to determine if the work performed was actually done so in the normal course of Trang’s business.
“[What if] Trang [undertook the work when] she was not booked for other client work and so she did it then because otherwise Novee [her employee] would be twiddling her thumbs and not doing anything? What about then?” he said.
