The submission said there needed to be solid guidance on how a superannuation fund could establish an appropriate commercial price, especially for income and expense items.

The joint bodies note that in the explanatory memorandum for the Treasury Law Amendment (2018 Superannuation Measures No. 1) Bill 2019, which contained the initial amendments to the superannuation non-arm’s length, it said the following at par 2.49:

“It can be difficult to determine an exact price that is ‘non-arm’s length’. An ‘arm’s length’ price may be accepted to fall within a range of commercial prices.”

Furthermore, this sentence was also stated in the exposure draft legislation when it was released and was also in the original legislative bill that sought to enact the NALI changes.

However, the submission said these words did not appear in the explanatory memorandum for the Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Bill 2023, which contained the most recent amendments.

“The difficulty with determining a precise arm’s length price has been expressed in the BPFN case in which the Administrative Appeals Tribunal accepted the taxpayer’s expert witness’ view that the transactions in question were ‘within the reasonable bounds within the commercial market’ (see par 753),” the submission read.

“We are concerned that the ATO remains silent on the fact that it is ubiquitously difficult to definitively determine what an arm’s length price or value might be and that a range will be appropriate. The LCR would be improved if this point was acknowledged.”

It continued that the LCR should also contain guidance on how small super funds may acceptably determine the lower and upper bounds of appropriate commercial prices and how they may then decide on an appropriate price or value to apply in a particular circumstance.

“For asset values, we acknowledge the ATO guidance for determining a market value as well as the related guidance for SMSFs. It is our understanding that many valuers avoid providing a pinpoint value for fear of being sued and increased professional indemnity insurance premiums,” it read.

“We would therefore like to have confirmation that the ATO do accept that there can be considerable range in market values and that this is especially the case where there is no mandatory requirement for a registered valuer to be engaged.

“It is unreasonable to expect taxpayers to engage a professional valuer who only reports a range of market values – between a lower and higher value range – and then expect a taxpayer to gather evidence to establish and support their pinpoint value within that range. Do they go the mid, the lowest, the highest or somewhere in between?”

The submission also voiced concerns over record-keeping requirements for asset acquisitions, acknowledging that taxpayers are required to retain adequate records to accurately determine their tax liabilities.

However, it noted that while most superannuation fund trustees will be required, often via their fund’s trust deed, to keep records of all relevant transactions, such as all asset purchases and disposals, they may still have insufficient information for sections 295-550 of the Income Tax Assessment Act.

“For example, suppose an SMSF had acquired business real property from a related party in July 2015 via part purchase and part in-specie contribution. Since the property was acquired the SMSF has moved to a new tax agent on two separate occasions,” it read.

“The trustee and the previous tax agents all say that the transaction was completed at market value and recorded as such by the SMSF in its asset and CGT registers. The initial tax agent also says that the in-specie contribution was completed in accordance with the requirements of the applicable TR 2010/1.”

The example continued that the current tax agent has sought to find corroborating documentation confirming that the property was acquired at market value but given the timelapse and record-keeping requirements neither of the previous tax agents has retained relevant information.

“The trustee had taken advice from its tax agents that as the acquisition had been recorded in the fund’s CGT and asset registers no other documentation had to be retained longer than required by the superannuation and tax laws. What evidence would prove that the transaction had been completed on arm’s length terms?”