The recent changes to Law Companion Ruling (LCR) 2021/2 have provided more clarity as to whether the non-arm’s-length expenditure (NALE), and by extension the non-arm’s-length income, provisions will apply to situations where an individual performs a service for their own SMSF, but not in a trustee role, a sector specialist has said.
LCR 2021/2 now stipulates a trustee must meet all of the requirements listed in section 17B of the Superannuation Industry (Supervision) (SIS) Act to be able to charge the SMSF for services rendered. Further, if these requirements are not satisfied, no fee can be charged to the fund for the relevant services and a NALE situation will not be considered to have occurred.
“[Satisfying section 17B of the SIS Act] includes that I hold an appropriate licence [needed to have performed the work] and, importantly, that I’m running a business and I’m advertising those services to the public,” Accurium head of SMSF education Mark Ellem told attendees of a practitioner webinar held today.
“If I don’t meet those requirements, I can’t charge [the fund for my services].”
He pointed out the clarification is spelt out in the amendment to LCR 2021/2 paragraph 42.
“[The new wording says] the non-arm’s-length expenditure provisions will not apply where, one, a trustee acting in that capacity, so acting in their capacity as trustee, provides services to the fund for no remuneration. Now it will be no remuneration because section 17A [of the SIS Act] says the trustee can’t charge for it. We’ve always known that and it has never given rise to NALE,” he said.
“[But] the second part [says] the trustee acting in a capacity other than as trustee, so it’s a non-trustee service, provides that to the fund for no remuneration where the requirements in section 17B are not met. So we don’t charge the fund because we don’t meet the requirements of section 17B.
“[So] if that’s the case if there is a legislative prohibition under [SIS Act section] 17B on us charging our fund for a non-trustee duty, like painting [or] repairs, then that’s not going to enliven the non-arm’s-length income provisions.”
