ATO transitional compliance approach to non-arm’s length expenditure for SMSF auditors

The ATO has clarified that self-managed super funds (SMSF) auditors do not need to modify their independent auditor’s report (IAR) for the 2018-19, 2019-20 and 2020-21 income years regarding non-arm’s length expenditure incurred by a fund of a general nature.

Practical Compliance Guideline PCG 2020-5 provides that the ATO will not allocate compliance resources to determine whether the income of a complying super fund is non-arm’s length income (NALI) where the fund incurred non-arm’s length expenditure of a general nature that has a sufficient nexus to all ordinary and or statutory income derived by the fund for 2018-19, 2019-20 and 2020-21 income years.

Auditors will still need to consider modifying their opinion in Pt A of the IAR where the fund incurred non-arm’s length expenditure that directly related to the fund deriving particular ordinary or statutory income as the compliance approach in PCG 2020/5 does not apply.