The government reintroduced its Treasury Laws Amendment (2018 Superannuation Measures No.1) Bill 2019 into Parliament a few months ago, which has recently been passed into legislation.
At the time, advisers were contemplating whether these measures would present problems for trustees who may be providing financial services to their own fund which they may not be allowed to charge for under the current super laws.
– if a financial planner provides investment advice to their own SMSF, or
– if an accountant provides tax return and accounting services to their own SMSF, or
– if a real estate agent provides property management services to their own SMSF, or
– if a solicitor provides trust deed or death benefit documentation services to their own SMSF but doesn’t charge their fund a fee for that advice or service, have they provided a service that is now caught by these new “non-arm’s length income” (NALI) rules.
If a fund breaches these new NALI rules, the result is that the income of the fund is taxed at 45% (instead of 15%).
This seems a very harsh result, for something where most advisers can’t see any or much cost to government revenue. Is not charging your SMSF a market rate fee for an immaterial service that large of an evil that it warrants such an extreme penalty?
The ATO has recently announced that it “will not allocate compliance resources to determine whether the NALI provisions apply to a complying superannuation fund for the 2018-2019 or the 2019-2020 income years”.
This is because the ATO now recognises that some trustees of SMSF’s may not have realised that the proposed amendments may apply to them and to give those trustees time to correct their practices.
The ATO has also clarified that financial services professionals who provide services in a business capacity to their own SMSF for less than market rate could see all the funds income attract the top tax rate of 45%.
However, if services such as accounting or financial advice or property management are provided by the trustee in a personal capacity, the SMSF’s income will not be treated as NALI.
The distinction between services provided to an SMSF in a business capacity versus a personal capacity is now very important – but clearly open to interpretation.