The ATO's stance on how to handle "general" expenses has raised concerns among accountants. In a specific part of their document LCR 2019/D3, they state:
"In some cases, expenses not negotiated at arm's length may be linked enough to all the income earned by the fund."
According to the ATO, when a self-managed super fund (SMSF) pays a general expense in a non-arm's length way (or doesn't spend money when it should), it could lead to all of the fund's income being considered non-arm's length income (NALI). Interestingly, the ATO didn't refer to the explanatory memorandum (EM) or cite any legal cases to back up this view. This view wasn't even mentioned in their previous draft ruling (LCR 2018/D10, which has since been taken down).
The ATO's approach seems to stretch beyond what the amendments intended and could lead to unfairly harsh consequences for relatively minor issues. An example from LCR 2019/D3 illustrates this concern.
If you have any questions, feel free to reach out to Tax Ideas Accountants & Advisers at +61 2 83181545, or you can schedule an appointment through our live calendar.