Submission to Treasury on the proposed changes to the non-arm’s length income (‘NALI’) rules
March 2023
Treasury recently released a Consultation Paper in response to concerns raised by the superannuation industry regarding amendments made to the NALI provisions. Most notably, the introduction of these amendments has resulted in the potential for disproportionately severe outcomes for breaches relating to general fund expenses. In particular, the ATO holds the view that general expense breaches could lead to all the fund’s income being taxed as NALI at 45%.
To address this issue, the Consultation Paper proposes setting an upper limit for SMSFs and small APRA funds on the amount of income taxable as NALI due to a general expenses breach. Under this approach, the maximum amount of fund income taxable at the highest marginal rate would be five times the level of the general expenditure breach (that is, an effective tax rate of 225%, being 45% x 5), capped at the total amount of fund income.
The NTAA has provided a submission in relation to the Consultation Paper, in addition to being a signatory to an open letter sent by professional bodies to the Hon Stephen Jones MP, Assistant Treasurer. These documents can be viewed on the NTAA website - click here.
The NTAA view is that the approach put forward in the Consultation Paper is not fit for purpose. In particular, the NTAA’s submission expresses the view that the Consultation Paper’s proposal for an effective tax rate of 225% to be applied to a general expenditure breach is disproportionate and excessive. This is particularly so given the breach relates to what has been acknowledged by Treasury to be a “relatively minor breach”. The NTAA’s submission also notes that the Consultation Paper is lacking because it fails to address problems with non-arm’s length ‘specific fund expenses’.
The NTAA’s submission provides more appropriate alternative solutions for Treasury to consider in the context of dealing with non-arm’s length expenditure incurred by SMSFs.
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