Simple NALE fix exists in SIS Act


The government’s NALE solution addresses a problem that no longer exists and could be easily fixed by an amendment to the SIS Act.

The federal government can easily address breaches of the non-arm’s-length expenditure (NALE) provisions using existing superannuation legislation rather than pursuing its proposed model, which provides a solution to a problem that no longer exists, according to the SMSF Association (SMSFA).

Association deputy chief executive and director of policy and education Peter Burgess said the government’s recently released consultation paper aimed to fix problems stemming from the amendments made to the Income Tax Assessment Act 1997 in 2019 that were initially put forward to deal with zero interest limited recourse borrowing arrangements.

“The ATO has solved that problem with the issue of Practical Compliance Guideline 2016/5 and we have now got safe harbour parameters,” Burgess said during the SMSFA National Conference 2023 in Melbourne today.

“The problem they are trying to solve has already been solved and it is not clear to us what problem they are not trying to solve.”

As such, he said it was possible the government could use the existing provisions of the Superannuation Industry (Supervision) (SIS) Act to address NALE and the SMSFA was unsure why it had not done so, but, via its submission to Treasury, had called for the repeal of the 2019 amendments.

“We are calling on the government to repeal the 2019 amendments because they are not working and there are sufficient provisions in tax law right now to deal with the issues we think they’re trying to deal with,” Burgess said.

“If the government is worried about people sidestepping the contribution caps, the way to deal with this is not through the tax act but through the SIS Act and amend section 109 so that it captures NALE.

“Section 109 is an operating statement, which means it has to be audited every year by auditors, and then the materiality test comes into play in terms of what will be reported.”

He added any expense shortfall amount could be treated as a contribution in accordance with the ATO’s contribution ruling TR 2010/1.

“This would be a much simpler, cleaner and measured approach to a problem, which in our view is already dealt with by other legislative provisions,” he said.

“The government does appreciate that the current laws, the 2019 amendments, give rise to disproportionately severe outcomes, which is a positive. It also means that we are going to see something as they’re not going to walk away and do nothing.

“I cannot speak on behalf of the whole superannuation industry, but I’m confident in saying that if the government did repeal the 2019 amendments, that would be applauded by the entire superannuation industry.”

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