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ATO, NALI/NALE

NALE compliance stance extended

ATO NALE compliance

The ATO will continue its practice of not deploying compliance resources to address non-arm's length expenditure breaches of a general nature.

The ATO will extend its transitional compliance approach to non-arm’s length expenditure (NALE) for another 12 months that will see it not take  enforcement action against breaches of these provisions that are of a general nature incurred before 30 June 2023.

In an update posted on its Advice and Guidance Issue List, the regulator stated it will be updating Practical Compliance Guideline (PCG) 2020/5 – which deals with its compliance approach in the application of non-arm’s length income (NALI) provisions to NALE.

“This means we will not allocate compliance resources in the 2022/23 financial year to determine whether the NALI provisions apply to all the income of the fund where it incurs NALE of a general nature on or before 30 June 2023,” the ATO said.

“The extension will provide the community with greater certainty on our administrative approach while we work on resolving the concerns of industry.”

The ATO update indicated the publication date for the revised PCG 2020/5 would be 10 June 2022.

As a result of this change, Law Companion Ruling 2021/2, outlining the application of the NALE provisions, will also be amended from 10 June 2022 to reflect the updates to PCG 2020/5.

Commenting on the change, the SMSF Association said: “It is important to note, this transitional compliance approach only applies to general expenditure. It does not apply where the fund incurred non-arm’s length expenditure that directly related to the fund deriving particular ordinary or statutory income”.

“We applaud the ATO for listening to the industry and engaging in ongoing discussions on this matter, the SMSFA said in a notice to members,” it continued.

“This extension provides the SMSF industry with greater certainty while we continue to work with the ATO and Treasury on a legislative fix.”

The SMSF Association was one of 13 professional and industry bodies seeking the extension and is continuing to hold discussions with the ATO and Treasury to create less severe penalties for breaches of the NALE provisions.

In March of this year, then Minister for Superannuation, Financial Services and the Digital Economy Jane Hume said the government would introduce legislative changes to ensure the NALE provisions operated as first intended and prevent superannuation funds from circumventing contributions caps.

Following a change in government, there has been no official statement from the incoming Minister for Financial Services, Stephen Jones regarding NALE.

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