This can commonly happen when a member makes an in-specie contribution of an asset that they own, such as business real property or listed shares.

“In the updated ruling, the ATO states that any sort of in-specie contribution must be recorded by the fund at market value,” Mr Day said.

“So, if I purchase it, and it’s considered to be undervalued, then I’ve got a problem with NALI, but if it’s an in-species contribution, I’m still going to have a problem with section 66 of SIS.

“But from a contribution or non-arm’s length expense situation, what the ruling says is even if you transfer it in for less than arm’s length value, it must be administered by the fund at market value.

“If you do an in-specie contribution for less than market value, you can actually end up with a non-arm’s length expenditure because the fund will be required to administer it at market value.”

Another important consideration of the ruling is what happens where members do a part contribution and part purchase, which is not uncommon for SMSFs, according to Mr Day. As a result, this requires an increased need for careful documentation when undergoing these transactions.          

“The ruling says that you could also trigger the non-arm’s length expense rules unless your documents clearly call out that this transaction is being done as a part purchase as well as a part in-specie contribution,” Mr Day noted.

“If I was doing listed shares and for example, I have a portfolio of 100 BHP shares, and I’m doing a purchase for 85 per cent of them. All my documents will need to show a purchase for 85 per cent of shares, and then I need a separate document doing my in-species contribution for the remaining 15 per cent shares.

“If you try to do an in-specie contribution or purchase in that situation for 100 per cent of the shares, and then treat the 85 per cent as the cost, and then treat the remaining 15 of the cost as a contribution, you’ll actually have NALE and NALI.

“So, it’s really important that you get your documents right in that situation. Your documents must clearly call this out so that if the ATO or the auditor comes in, they can both see clearly if the transaction is done at market value and that they are not a problem.”

Day 3 was followed by a comprehensive session from Lee Eaton, national head of business development at Independent Reserve, providing a solid understanding of the basics of Bitcoin and cryptocurrencies for SMSF accountants and advisers.

The day ended with ATO director Kellie Grant, who provided a key overview of the new projects, top compliance issues and initiatives affecting SMSF advice the ATO will be focusing on in FY21-22 and beyond.    

The winner of the daily $500 prize for Day 1 goes to Frances Nichols from MarlNic Accounting Services. Kyle Baddeley from Sovereign Financial won the prize on Day 2, and Douglas Coghlan from DMC Business Services took home the prize for the final day.

The overall event winner goes to Michael Rice from Rice Advice.

SMSF Adviser will be in touch with all the winners!

If you missed any of the sessions, you can access the recordings on the virtual attendee portal.