A specialist lawyer has pointed out the severity of the penalties contained in the non-arm’s-length income (NALI) and non-arm’s-length expenditure (NALE) laws has again raised the question of the ATO having a conflict of interest in its role as the regulator of the SMSF sector.
“Here with NALI the ATO can raise a lot of tax. So it’s really a conflict here to have a government body that can pull the ace out of its sleeve, get you on NALI, raise a lot of tax, but it also has to be the manager of people’s [self-managed] superannuation,” DBA Lawyers director Daniel Butler told attendees at The Tax Institute National Superannuation Conference in Sydney recently.
“So it’s such a severe conflict of interest unless we have a proper proportionate ability to fix up and reasoned basis where, if it is going to be NALI that’s raised, then there is a review panel at a higher level.”
Conflict of interest concerns were originally expressed by sections of the industry when the Australian Prudential Regulation Authority handed regulation of SMSFs over to the ATO due to its existing tax collection responsibilities, Butler said.
With regard to a more measured application of the NALI and NALE provisions, he suggested the ATO’s approach should be similar to that used in relation to breaches of Part IVA of the Income Tax Assessment Act.
“It should be for those schemes where you put $200 in and you get [a] $1.8 million [return] in three years,’ he noted.
The inclusion of a de minimis clause in the legislation has been recommended as a solution during the debate about the issue, however, he said this course of action is not a satisfactory answer.
“It is difficult with a de minimis [provision] because where [do you draw] the line? But if it’s proportioned and there is some control on the ATO applying [NALI], then I think we can live with that law,” he said.
Although highlighting the current perceived conflict of interest over NALI, he acknowledged the ATO is generally very reasonable in its approach to compliance issues.
