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NALI/NALE

Caution now needed with NALE

SMSF NALE

The consensus among a panel of SMSF specialists is for fund trustees to apply an ultra-conservative approach to the NALE rules.

A panel of SMSF specialists has recommended advisers and trustees take a very conservative approach to non-arm’s-length expenditure (NALE) from 1 July 2022 given the ATO’s confirmation it will be allocating compliance resources to that issue from that date.

“Given the ATO has said it is going to apply [the NALE rules] from 1 July 2022, despite the fact there is some review coming up, I think what that means is we have to go forward [as the rules] will operate as they are currently described, which means taking quite a conservative view [to NALE],” BDO superannuation partner Shirley Schaefer told delegates at the Tax Institute Superannuation Intensive held last week.

“So if in doubt, make sure [the transaction] is [carried out] on an arm’s-length basis and if you have to charge yourself an expense, charge yourself an expense.”

Fellow panellist Cooper Partners Financial Services head of SMSF and succession Jemma Sanderson expressed her frustration at the regulator’s decision and pointed out it may indicate a misunderstanding of the more egregious aspect of the NALE rules allowing non-asset specific or general expenses to taint the entire revenue of an SMSF as non-arm’s-length income.

Session facilitator N Panos and Associates owner Nick Panos said SMSF members have to accept the situation for what it currently represents.

“It is what it is and obviously you need to act on an arm’s-length basis with your SMSF, particularly if you’re providing services [for the fund], whether as an accountant or lawyer or real estate agent and so forth,” Panos said.

The ATO had previously given an assurance it would not be committing any compliance resources to enforcing the NALE rules for the 2020, 2021 and 2022 income years, but confirmed it would not be following the same approach for the 2023 financial year.

“I must acknowledge the very recent government announcement regarding [its] intention to consult with industry stakeholders about the operation of the NALE provisions. I want to confirm that despite this announcement the ATO must continue to administer the law as it currently stands,” ATO SMSF risk and strategy assistant commissioner Justin Micale said during the same event.

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