The federal government has stated it will introduce legislative changes to ensure the non-arm’s-length expenditure (NALE) provisions operate as they were first intended and prevent 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 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 superannuation sector hads expressed its concerns over the impact of the NALE provisions following the release of Law Companion Ruling (LCR) 2021/2 by the ATO in mid-2021 at which time the ATO indicated that any non-arm’s length expenditure would have a sufficient nexus to all of the ordinary and/or statutory income derived by the fund.
Since that announcement, a collective of industry associations have been gathering data on the impact of NALE on superannuation funds and called for the government to step in and review the application of the NALE provisions.