The federal government has stated it will review the non-arm’s-length expenditure (NALE) provisions and introduce legislative changes to ensure they operate as first intended in preventing superannuation funds from circumventing contributions caps.
Superannuation, Financial Services and the Digital Economy Minister Jane Hume made the announcement in a brief statement, saying to achieve the goal of the provisions working as intended, “the government and Treasury will consult with relevant industry stakeholders on the appropriate operation of the non-arm’s-length income (NALI) and expenditure provisions, particularly for APRA (Australian Prudential Regulation Authority)‑regulated superannuation funds”.
“The non-arm’s-length expense provisions are designed to prevent superannuation funds from circumventing contributions caps and artificially inflating fund earnings through non-commercial dealings,” Hume said.
“The government understands that some industry stakeholders have concerns regarding the interpretation of these provisions by the Australian Tax Office in a recent Law Companion Ruling and the implications of this ruling for both APRA-regulated funds and SMSFs.
“We have heard the concerns of the industry and will work to amend the law to make sure it operates as intended.
“I’d like to thank all stakeholders that have engaged meaningfully on this issue so far.”
Details of the consultation process have yet to be released, but Hume added the government would ensure the legislative changes apply from 1 July 2022.
The SMSF Association welcomed the announcement noting NALE rules currently went further than intended and could lead to all income of an SMSF being taxed at 45 per cent because a fund failed to incur a small fund expense on arm’s-length terms.
“We understand what these provisions are trying to achieve. However, we have always maintained these new rules should not apply to general fund expenses,” SMSF Association deputy chief executive and policy and education director Peter Burgess said.
“We are also concerned about some situations where NALE could give rise to all the income from a particular fund investment, including realised capital gains, being forever tainted as NALI – at the very least trustees should be given an opportunity to rectify the transaction if NALE arose from an inadvertent mistake.”
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