Push for government review of NALE rules

NALE rules review

The government must step in and take action on the application of the NALE rules to ensure they do not create negative unintended consequences.

Industry bodies have called on the federal government to commit to a review of the non-arm’s-length expenditure (NALE) rules and addressing the potential for general expenses to taint all of a superannuation fund’s income.

The call was made by 11 industry bodies as part of a submission to Superannuation, Financial Services and the Digital Economy Minister Jane Hume in September 2021, but the paper was only recently released by Chartered Accountants Australia and New Zealand (CAANZ).

In the submission, the bodies, also including the SMSF Association, Self-managed Independent Superannuation Funds Association and Association of Superannuation Funds of Australia, stated the NALE rules and the ATO’s interpretation of them would have harmful consequences that were not intended and should not be left unaddressed.

“While the joint bodies have a number of issues with the reach of these provisions, our overarching concern is that the ATO’s interpretation of the law means that rather than merely addressing the mischief at which the government policy was directed, the rules could result in unwarranted significant and long-term detriment to fund members and could operate in conflict with a range of trustee obligations such as the best financial interests duty rule in the Superannuation Industry (Supervision) Act,” the submission stated.

“Given the significant impact these rules may have on retirement savings, the joint bodies ask that the government make an announcement that they will review the NALI rules in section 295-550 of the Income Tax Assessment Act 1997 and encourage the ATO to provide further administrative relief until this review and relevant amendments to the legislation are enacted.”

The bodies said any announcement needed to ensure the potential for general expenses to taint all the income of the fund at the NALI tax rate ceases to be an issue and the NALI rules operate in a manner consistent with other anti-avoidance provisions so the application of the rules is proportionate to the problem being addressed.

The submission was first flagged in October last year when CAANZ indicated the joint bodies were creating case studies to demonstrate the impact of NALE on superannuation funds and would be passing those onto Hume.

The other bodies involved in the submission were CPA Australia, The Tax Institute, the Institute of Public Accountants, National Tax and Accountants Association, Actuaries Institute, Financial Planning Association of Australia and Tax & Super Australia.

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