Industry-wide concern over NALE

NALE superannuation

Concerns about the NALE rules as they currently stand and the associated penalties are now being expressed by the entire superannuation industry.

The entire superannuation industry and not just the SMSF sector is now seeking a practical solution to the non-arm’s-length expenditure (NALE) rules as the severity of the associated penalties are being better understood.

The matter that is causing angst for superannuation funds across the board relates to the provisions around general expenses and how a discount on administrative services has the potential to trigger the NALE provisions, which will in turn have all of the income of the retirement savings vehicle taxed at 45 per cent.

“Now you can see from this why the APRA (Australian Prudential Regulation Authority)[-regulated] funds have come on board with this and why they are so upset about these changes because it potentially has bigger implications for them than it does for self-managed super funds,” SMSF Association deputy chief executive and director of policy and education Peter Burgess explained.

“It’s because there are quite a lot of APRA[-regulated] funds out there that outsource the administration of their fund, or the investment management of their fund, to a related entity and they don’t pay commercial fees for those services.

“So they are caught under these provisions and it means all of the income that the fund receives, including all the SG (superannuation guarantee) contributions they receive from their millions of members, will be taxed at 45 per cent.

“So you can see why now this is a big issue for the industry funds.”

According to Burgess, the magnitude of the problem was highlighted at a recent ATO meeting where most of the industry associations in attendance indicated it is the number one issue facing the superannuation industry right now.

On a positive note, he said it is understood current Financial Services Minister Stephen Jones has asked for a briefing on this particular matter.

“This is encouraging, so we remain confident that we will see some amendments to the law because we need an amendment to the law to ensure these measures are much more targeted and work as intended,” he noted.


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