A Senate committee reviewing the bill to legislate the non-arm’s length expenditure (NALE) rules has recommended it be passed having assessed the provisions as an appropriate method to deal with transaction of this nature
The report from the Senate Economics Legislation Committee was handed down late last week with a recommendation to pass the Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Bill 2023, including Schedule 7 which will implement the NALE changes.
“The committee is of the view that this schedule is a welcome and simple change to ensure that penalties for breaches of the rules are proportionate to the benefit gained and shares the view of submitters that they are an improvement on the rules originally introduced in 2018/19,” the report stated.
As part of its consultation process the committee, which includes two Liberal Party senators and one Greens Senator, received submissions from Association of Superannuation Funds of Australia which supported the changes.
Conversely submissions from the SMSF Association, Chartered Accountants Australia and New Zealand, CPA Australia, Institute of Public Accountants, and The Tax Institute called for changes including a repeal of the current NALE rules and new amendments to section 109 of the Superannuation Industry (Supervision) (SIS) Act to manage arm’s-length arrangements.
Responding to the industry feedback the report noted: “While the committee recognises the views held by witnesses on the NALE rules more broadly, feedback on this schedule is that the more proportionate penalty is a welcome change.
“The committee agrees with the evidence provided by representatives of the Department of the Treasury that alternative approaches to deterring the kind of mischief envisioned by the NALE rules would not be effective.”
Despite the report recommending the NALE changes become law the two Liberal Party senators on the committee also suggested the government review the amendments to the SIS Act proposed by the superannuation and tax industry bodies as an alternative solution to concerns around NALE arrangements.
“There was a uniform view from joint accounting bodies heard by the Inquiry that although Schedule 7 was an improvement to the NALE rules amendments, the overall provisions introduced in 2019 were unnecessary and punitive,” Senators Andrew Bragg and Dean Smith said.
The two senators noted the use of amendments to section 109 of the SIS Act, which was put forward to Assistant Treasurer Stephen Jones in February 2023, would “be more proportionate and less disruptive” and would function as an “operating standard” without introducing a different tax standard between SMSFs and Australian Prudential Regulation Authority-regulated funds.
“The alternative proposed in the Joint Submission is a sensible solution to address any integrity concerns without placing an unnecessary burden on one sector of the superannuation industry,” they said.
