Foolish NALE Error

27 Sep 2023

Written by

David Busoli, Principal

There has been no shortage of comment regarding non-arm’s length general fund expenses that taint the whole SMSF. Recently I was shown the accounts of an SMSF that had been administered by the same accountant for many years. No administration fees had been charged to the fund at all. Instead, I presume, the fees that would have been charged were loaded onto the fees payable by an associated tax entity that was paying a higher tax rate.

Should the ATO investigate, there are a number of possible outcomes. Some are more severe than others. If the accountant had issued an invoice for the fund that was paid by the other entity, then this would constitute a deemed concessional contribution to whomever the trustee decided. If no invoice had ever been issued regarding the fund, the tax deduction taken by the other entity for the fees attributable to the fund would be disallowed – plus penalties of course. Deemed concessional contributions might still be invoked. Most worrying, however, is the possibility that the ATO might apply NALE to the whole fund, given that this is a general expense.

Certainly, there would not be an issue if the accountant had charged a “reasonable” fee, with considerable leeway as to what constitutes “reasonable”, but to charge no fee at all is just being foolish.

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