COMPLIANCE
Urgent work still required
The bill to legislate the government’s final position on non-arm’s-length expenditure has been introduced to parliament, but Daniel Butler and Bryce Figot point out the issue is still far from resolved.
DANIEL BUTLER (pictured) is director and BRYCE FIGOT special counsel at DBA Lawyers.
58 selfmanagedsuper
The non-arm’s-length expenditure (NALE) provisions have proved controversial since they were introduced with effect from 1 July 2018. Perhaps the most controversial aspect has been the fact small discounts on services, such as an adviser fee of $100, can give rise to substantial extra tax. For instance, under the current law, a NALE breach will subject all of an SMSF’s ordinary and statutory income, including net capital gains and assessable contributions, to a 45 per cent tax rate instead of the usual 15 per cent. The amending legislation to reduce some of this tax impact, namely the Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Bill 2023, was introduced into parliament on 13 September, but has not yet been passed as law. This bill will, if it becomes law, reduce the tax impact where a lower or nil general expense is incurred by an SMSF through the imposition of an upper cap on the amount that is taxed as non-arm’s-length income (NALI). The bill provides an upper cap on changes to NALE
introduced in section 295-550(1)(b) and (c) of the Income Tax Assessment Act 1997 (ITAA) where the NALE relates to a general expense. There is no relief for SMSFs for specific expenses which will be subject to the usual NALI rules as per ITAA section 295-550. References in this article will be to the ITAA unless stated otherwise. At the time of writing this article, the bill needs the approval of the Senate and, if finalised as law in early 2024, the changes could take effect from 1 March. Once passed, this bill will have retroactive application back to 1 July 2018.
What were the 2018 NALE changes? Broadly, under the current NALE provisions (see paragraphs (b) and (c) of section 295-550(1)) where the parties are not dealing at arm’s length, and a lower or nil expense is incurred, all the ordinary and statutory income of a superannuation fund for a financial year (FY), including assessable contributions, will be taxed Continued on next page
