Current penalties sufficient for NALE

tax penalty NALE

The current tax penalty regime can address breaches of the NALE provisions rather than the outsized penalty model put forward by the government.

The current tax penalty regime is sufficient to address breaches of the non-arm’s length expenditure (NALE) provisions and can deal with reckless abuses of those rules but should only be applied following a determination from the ATO Commissioner, according to an SMSF legal expert.

DBA Lawyers principal Dan Butler noted the general view of the SMSF sector is that some firm of integrity provisions should be applied to NALE but it should be fair and proportionate, unlike the five times factor or 225 per cent penalty put forward by the government in its most recent proposal paper in January this year.

“Where does this five times factor come from? It is unusual and is out of lockstep with other tax provisions,” Butler said during a webinar he held late last week.

“That is what Treasury has come up with and at least it is willing to do something but from my viewpoint it’s not that good.

“I like the approach that we use the existing penalty regime and if you haven’t used reasonable care you’re up for a penalty.

“So, if you haven’t used reasonable care, the penalty could be up to 25 per cent, if you were reckless 50 per cent right up to 100 per cent. Why do we need a five times multiple when the existing system is very good regime that is well tried and tested for tax penalties.”

Butler added the joint professional bodies are seeking a change in position from Treasury as well as requesting NALE not be automatically invoked but, similar to Part IVA penalties, should require the ATO Commissioner to issue a determination.

“There is some movement but we’re still waiting and hope there will be a fair and reasonable position brought to bear but at this stage, SMSFs are not really getting the treatment that I believe we deserve,” he said.

“We should get a fair hearing with this consultation because it is only the SMSF sector impacted now that the proposal has been narrowed down on this general expense [by the exclusion of non-SMSFs in the proposal].

“Hopefully, the ATO will also extend the current practical compliance guideline tool for another year, because it is unlikely to be fixed before 30 June this year.”

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