If you manage a self managed superannuation fund (SMSF), recent changes to tax rules for certain fund expenses could affect you. These changes may even apply to services provided for free. If your fund doesn’t pay market price for services, it could face significant extra tax.
The new rules focus on “non-arm’s length general expenses” – services provided to your SMSF at below-market prices or for free. Income related to these general expenses may be classified as “non-arm’s length income” (NALI) and taxed at 45%. The new rules took effect on 29 June 2024, but are retroactive to 1 July 2018.
Key points to consider
- General expenses: The rules apply to general expenses not charged at market price. These are expenses that don’t relate to a specific fund asset, such as accounting fees or investment advice that does not relate to a specific investment (eg asset allocation advice).
- Trustee roles: As a trustee, under the superannuation law you generally can’t charge for your duties. However, if you provide services for free, or at a significant discount, as a professional (eg accountant, auditor or financial adviser) the NALI rules may apply.
- NALI limits: The amount of NALI is capped at twice the difference between the actual expense and the market rate. If no expense is incurred, it’s limited to twice the market rate.
- Overall cap: The non-arm’s length component can’t exceed the SMSF’s taxable income (minus assessable contributions plus related deductions).
These new rules could catch out professionals trying to save their SMSF some money. If you’re providing services to your SMSF or getting services at below-market rates, you need to be aware of these rules.
If you’re unsure about how these rules affect your SMSF, it’s best to consult with a tax adviser. They can help you understand if your fund’s expenses are subject to the new rules and advise on any necessary changes.
