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Superannuation, Tax

NALE no-action period extended

NALE ATO action

The ATO will continue to take a no-action position in relation to non-arm’s-length expenditure (NALE) for another 12 months as SMSF practitioners continue to wait for the regulator to reach a final position on the issue.

The ATO will continue to take a no-action position in relation to non-arm’s-length expenditure (NALE) for another 12 months as SMSF practitioners continue to wait for the regulator to reach a final position on the issue.

The move, announced by ATO assistant commissioner Justin Micale during a presentation to the Tax Institute yesterday, means the regulator’s draft Law Compliance Ruling (LCR) 2019/D3, released in October 2019, will not be applicable to the 2021 financial year even if it is finalised during that period.

The regulator had previously outlined its no-action position on 1 June 2020 in Practical Compliance Guideline 2020/5, which stated it would not allocate compliance resources to determine whether the non-arm’s-length income provisions applied to SMSFs for the 2019, 2020 and 2021 income years where a fund incurred NALE of a general nature that had a sufficient nexus to all ordinary and/or statutory income derived by the fund in those income years.

Commenting on the latest extension, the SMSF Association said: “[The] extension more or less confirms finalisation of draft LCR is not as imminent as industry would have hoped.

“Positive signs industry’s concerns are under serious considerations as the ATO seeks independent, specialist advice before finalisation.”

Also commenting on the development, Cooper Grace Ward partner Scott Hay-Bartlem pointed out the news of the extension did not change how NALE was being considered where an expense was not a general expense.

“The ATO has announced an extension, but it is important to remember this does not affect what happens to specific assets. They will still trigger NALE issues now,” Hay-Bartlem said.

Heffron managing director Meg Heffron noted the draft LCR was contentious for the way in which it viewed services provided by accountants and advisers to their own SMSFs as being NALE, but they could continue to provide those services for at least another year.

What this really means is that – for now – they will simply not consider that question and so I won’t get into strife. The original announcement was that this approach would apply for 2018/19 and 2019/20, it was then extended to 2020/21 and now finally to 2021/22,” Heffron said.

“So while the ATO continues to work towards a resolution, the rest of us can put this issue on the backburner for now.”

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