NALE proactivity urged

NALE rules proactive

Advisers should take a more proactive stance on the non-arm’s-length expenditure (NALE) rules to expedite a satisfactory solution.

A specialist SMSF lawyer has implored practitioners to take a more proactive stance with their professional associations in order to find a satisfactory solution to the current non-arm’s-length expenditure (NALE) rules.

“It really is something [where] you have to go to your professional body [and] say that you are not happy [with these provisions]. Tell them what you think of it and just put that forward because that’s what’s been happening at The [Tax] Institute – we’re taking those member complaints on board and we’re funnelling them back up to Treasury, to the ATO and government,” DBA Lawyers director Daniel Butler told delegates at The Tax Institute National Superannuation Conference held in Sydney last Friday.

“It’s that sort of noise which will have some [impact] at the end of the day.”

According to Butler, the original legislation dealing with NALE is poor and attempts at providing a solution have not been managed well.

“So we’ve got incredibly poor law, incredibly uncertain law and law that was introduced from 1 July 2018 that by a patchwork of an ATO PCG (practical compliance guide) we’re supposed to be happy with,” he said.

“We all play along with this [in] happiness of this ATO fix of very poor broken law, [but] why should we really put up with this position?”

He emphasised his criticism of the law was not a criticism of the regulator’s actions regarding this issue.

“It’s not about the ATO. The ATO has actually moved with us to provide [its] solution [via PCG 2020/5], but it is a patchwork solution. It’s nothing you can rely upon and it’s not binding on the ATO, but it gives us some comfort,” he noted.

To this end, he warned practitioners not to rely on PCG 2020/5 as a definitive NALE instruction.

“[I say to] auditors, if you rely upon that, do so at your own risk,” he said.

The ATO has to date not allocated any enforcement resources for compliance with the NALE rules, but this amnesty ends on 30 June 2023.

The NALE issue has now become a whole-of-industry concern.

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