The publication of draft Law Companion Ruling, LCR 2019/D3 Non-arm’s length income – expenditure incurred under a non-arm’s length arrangement was certainly the most controversial topic impacting the SMSF sector over the past 12 months, with this legislative interpretation bringing into focus a range of circumstances that aim to clarify the distinction between personal and trustee services, but take appear to take a sledgehammer to crack an egg (that is, disproportionate outcomes on NALI arise as a direct result of a minor discount on a loss, outgoing or expense).
You can read our blog post here, Beware of how gnarly expenditure is within the new NALI rules.
To accommodate many practitioners impacted by these measures, the ATO simultaneously released practical compliance guidance, allowing for a transitional period to comply with LCR 2019/D3. This guidance has now been updated in the form of PCG 2020/5, which extends this relief a further financial year, now encompassing 2018-19, 2019-20 and 2020-21
Whilst clarification on the non-arm’s length expenditure (NALE) requirements as soon as possible would be beneficial to the industry, in this current environment it is not unreasonable for the ATO to require additional time to finalise their position due to the impacts of COVID-19, especially when practitioners have been afforded that opportunity themselves with SMSF lodgements.