Dealing with the gnarly NALE

What accountants can and can’t do for their SMSF

Since the ATO final ruling (LCR 2021/2) on non-arm’s length expenditure (NALE), many members have asked what type of accounting services can they perform for their own SMSF without getting caught out by the new ruling. So, what do we know so far?

What accountants can do

Based on the ATO guidance from the final ruling, if a trustee/director of an SMSF:

•    Is an accountant/registered tax agent, and 
•    In their capacity as trustee/director, they perform bookkeeping services, prepare the accounts and annual return for their fund, and 
•    Does not use the equipment or assets of their firm, and 
•    Does not lodge the SMSF annual return using their tax agent registration, and 
•    Performs these duties or services as trustee/director of their SMSF and do not charge the fund for this work…

…then the NALE provisions should not apply as the duties or services performed by you are in your capacity as trustee/director. 

In other words, the final ruling indicates that if you do not use your tax agent registration and perform the accounting services as trustee/director of your SMSF, then a fee is not required and the NALE provisions will not apply. This is because being a trustee/director usually involves unpaid work that can require a trustee/director to leverage particular skills that they may already have.

What accountants can’t do

If a trustee/director of an SMSF is an accountant/registered tax agent and they lodge the annual return for their fund using their tax agent registration, you (the accountant) will be required to charge your fund a fee for that service. If no fee is charged, you run the risk that the fund’s income will be taxed as non-arm’s length income (NALI) at 45%.

What is still unclear

The ruling is unclear on how the use of other business assets and equipment (e.g. using accounting software to lodge annual returns) will be treated, particularly if the use of these business assets/equipment is relatively minor or incidental.

Generally speaking, SMSF trustees/directors who are not accountants/registered tax agents by trade can lodge their SMSF return electronically as long as they have software that supports electronic lodgement by standard business reporting. 

So, if you don’t leverage off business resources (e.g. the accounting software) and lodge the annual return electronically using your own individual access to the software then this is likely to be okay.

Otherwise, to minimise any NALE issues, you may wish to consider:

•    Staying away from using business assets/equipment (e.g. the accounting software), or
•    If you provide these services to your SMSF in your individual capacity, you may wish to consider (as trustee/director) to charge a fee for the accounting services you provide to your SMSF in your individual capacity.

Tip – you may also wish to consider keeping details/records about your services to your SMSF just in case the SMSF auditor asks you to prove in what capacity you performed these services, what equipment/assets you used to prepare accounts/annual returns for your fund, details about how you lodge the annual returns, and so on, so that you have proof of evidence to fall back on (if needed).

Want more information?

Our recent webinar on the final ruling, presented by our Head of Superannuation, Natasha Panagis, covers all the ins and outs of this important topic. You can purchase the recording of the webinar which you can watch as many times as you like, and you’ll also receive a copy of Natasha’s presentation slides and the full webinar Q&A. Find out more and purchase here.

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