New SMSF Expense Rules (August 2024 Tax Update)

Relevant For:

SMSF Trustees and in particular accountants, auditor and financial advisers.

Key Points:

• New SMSF rules target "non-arm's length general expenses" provided below market rates.
• Income related to these expenses may be taxed at 45% as "non-arm's length income" (NALI).
• Rules are effective from 29 June 2024, but retroactive to 1 July 2018.
• General expenses affected include services like accounting fees and general investment advice.
• Trustees cannot charge for their roles, but professionals must ensure services are at market rates.
• NALI limits are capped at twice the difference between actual and market expenses.
• The non-arm’s length component cannot exceed the SMSF's taxable income.

Full Article:

If you manage a Self-Managed Superannuation Fund (SMSF), it's crucial to stay informed about recent changes to tax rules that may impact your fund.

New regulations, in effect since 29 June 2024 but retroactive to 1 July 2018, are designed to prevent SMSFs from saving costs by accessing services at below-market rates.

These updates, which also apply to services provided for free, could lead to significant tax implications if your SMSF does not pay market rates for services.

The changes focus on "non-arm’s length general expenses" - services provided to your SMSF at below-market prices or for no charge at all. Income linked to these under-priced services may now be classified as "non-arm’s length income" (NALI), subject to a hefty 45% tax.

Key Changes

The new SMSF expense rules can be summarised as: