How Material is NALE?

18 Jul 2023

Written by

David Busoli, Principal

There has been significant comment on the government’s proposed treatment of general non-arm’s expenditure in SMSFs but what is a general expense.

General expenses include:

  • Actuarial costs
  • Accountancy fees
  • Audit fees
  • Costs in connection with the calculation and payment of benefits (not the benefit itself)
  • Investment adviser fees
  • Other administrative costs incurred in managing the fund.

The expenditure may be of a revenue or capital nature or deductible under a specific provision so can include fund establishment and deed amendment costs.

Any material instance must be identified by the SMSF’s auditor. This poses a conundrum as only those obvious instances, e.g. preparing the fund accounts for $0, will be necessarily caught given that it is not the auditor’s responsibility to determine the market value of a service. The ATO have a similar problem which is probably why their compliance resources will only be directed “towards ascertaining whether the parties have made a reasonable attempt to determine an arm’s length expenditure amount for services provided to the fund”.

Accordingly, where the SMSF’s documentation confirms that the parties have made a ‘reasonable’ attempt to determine the expenditure, the ATO won’t try and determine whether those expenses are, in fact, arm’s length expenses. Clearly, silly numbers like the $0 example above, will fail but, if the amount is “reasonable” and documents show that both parties have made a reasonable attempt to determine that the item is at arm’s length, then the auditors will have no reason to raise the issue.

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