SMSFs warned on NALE uncertainty

Heffron says SMSFs still need to be cautious around non-arm’s length arrangements.

Uncertainty over which SMSF arrangements will still be caught by NALE rules will remain until the legislation is amended, says Heffron technical specialist Lyn Formica.

After months of industry lobbying around the NALI/NALE rules, the government recently announced it will “amend the law to ensure it operates as intended”.

But Heffron’s head of technical and education services said clarification was needed in the meantime.

“Given the government’s commitment to finding a workable solution whilst still meeting NALI’s policy intent, during the consultation process we would be looking to gain clarity on the types of services which can be provided to SMSFs without triggering a NALI issue,” she said.

The amendments would need to identify whether the trustees of the unit trusts in which SMSFs invest can provide services to the trust without causing NALI issues.

SMSFs would also need to understand the ATO’s expectations where a fund purchases assets partly for cash and partly in specie.

Ms Formica said the amendments should also ensure the penalty for incurring NALE was proportionate to the mischief involved and that there was no NALI risk for funds given the government’s legislative changes were intended to apply from 1 July 2022, but the NALE provisions had application from 1 July 2018.

“Earlier this week, we did gain welcome clarity on one issue regarding NALI – the position for trustees who restructured their related party limit recourse borrowing arrangement in the lead up to 31 January 2017 to comply with PCG 2016/5,” she said.

“The ATO has now amended PCG 2016/5 to confirm that the commissioner will not seek to apply the NALI provisions to these arrangements for the 2018-19 and later years.

“Whilst the NALI/NALE story is not yet complete, thanks to the tireless lobbying of the various professional bodies and industry associations, it seems we are now on the path to finding a long-term pragmatic solution.”

Reporter

28 March 2022

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