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As the financial year draws to a close, the Australian Taxation Office (ATO) has issued two crucial...
NALE Rules & SMSF Auditors - Could You Have a Compliance Breach
The anticipated non-arm’s length expenditure (NALE) rules, which will oversee the regular costs of a Self-Managed Super Fund (SMSF), are projected to elevate the duties of auditors, especially concerning discounted administrative services, a technical director forecasts.
“[Discounted SMSF administrative services] most certainly need to be documented and the auditor is going to be looking for it. I said this was a compliance burden on self-managed superannuation funds [but] this is stuff that the auditor is potentially going to have to check for,” stated Lyn Formica, Heffron's Head of Education and Content, during a recent webinar for practitioners.
“NALE and non-arm’s length income, is a Part A [qualification] issue. It’s all about whether the financial statements represent a true and fair view [that can be covered by the] management letter,” she elaborated.
Formica emphasizes that this is neither a SIS (Superannuation Industry (Supervision)) compliance infringement nor a Part B [qualification] issue. Nevertheless, she's intrigued about the guidance the ATO might give to auditors in this context.
She expressed that the appropriate steps concerning the understanding and documentation of discounted SMSF administrative services aren't universally followed.
“When I’ve been presenting in different accounting firms and I talk about discount policies one partner will say ‘oh yeah we’ve got a discount policy that applies to [certain individuals]’ and someone else in the room will say ‘I didn’t know we had a discount policy’,” she shared.
“So sometimes it’s not a very well communicated discount policy.”
Formica also reminded practitioners that the upcoming NALE rules addressing general costs will only be relevant to services delivered from 1 July 2023, a date marking the cessation of the ATO's practice of not devoting compliance resources to enforce these rules.
“[But] it doesn’t matter the [financial] year to which that service relates. It’s just whether the service was provided after 1 July 2023,” she affirmed.
Regarding the NALE rules handling instances where a specific asset has been purchased with a discount, she underlined that the ATO had not adopted a lenient compliance stance for these situations, and any transactions carried out after 1 July 2018 incorporating this factor could be considered a compliance violation.
