News

NALI/NALE

Share scheme expansion needs NALE clarity

NALE share schemes

An expansion of access to employee share schemes puts more weight behind the need for clarity in the operation of non-arm’s-length expenditure rules.

The federal government’s plan to expand access to employee share schemes (ESS) reinforces the need for the SMSF sector to be clear on the operation of non-arm’s-length expenditure (NALE) rules and how discounts would be treated for non-arm’s-length income (NALI) purposes.

As part of this year’s budget, the government stated its planned expansion of access to the schemes would apply where employers made larger offers in connection with schemes in unlisted companies and that participants can invest up to $30,000 per participant per year, accruable for unexercised options for up to five years, plus 70 per cent of dividends and cash bonuses.

Alternatively, ESS participants would be allowed to invest any amount if it would allow them to immediately take advantage of a planned sale or listing of the company to sell their purchased interests at a profit.

SMSF Association head of policy Tracey Scotchbrook said the expansion of access to schemes to invest in unlisted companies was relevant to the SMSF sector.

“The expansion may have an impact on the SMSF sector and for those members who wish to use their fund to invest in an ESS,” Scotchbrook told selfmanagedsuper.

“However, there are are some potential concerns around the NALI and NALE provisions.

These concerns stem from shares being issued via an ESS are done so at a discount which can lead to the discounted amount being recognised as a contribution and invoking the NALI provisions as the assets were acquired at less than market value.

“Whilst it is not a budget measure, we did have the recent announcement from the government that they are going to look at putting through a legislative fix to deal with some of those NALE issues.

“We look forward to seeing the rectification come through because for these sorts of schemes having the NALE aspects tidied up is going to be important.”

''

Copyright © SMS Trustee News 2022

ABN 43 564 725 109

Benchmark Media

Site design Red Cloud Digital