ATO will not extend NALE relief

ATO NALE relief

The ATO does not have plans to extend compliance relief for breaches of the NALE provisions for a sixth year despite the government conducting a review of the arrangements.

The ATO will not extend its transitional compliance approach to non-arm’s-length expenditure (NALE) at the end of this financial year, bringing to an end the relief it has maintained for the past five years.

ATO superannuation and employer obligations deputy commissioner Emma Rosenzweig said the regulator was aware the federal government was consulting on the issue, but it had no plans to update Practical Compliance Guideline (PCG) 2020/5, which outlines its compliance approach to the application of the non-arm’s-length income (NALI) provisions to NALE.

“We are looking forward to seeing the government’s response to the consultation that they are doing for NALE, but we don’t intend to extend the PCG for SMSFs beyond 30 June this year,” Rosenzweig said during a presentation at the SMSF Association National Conference 2023 in Melbourne today.

She added the ATO’s task was to administer the current law regardless of how it was viewed by the superannuation sector.

“The PCG has never been about interpretation of the law. We’ve always had a clear position on how the law operates and I understand there have been concerns raised and that’s what’s being consulted on, but the PCG is what the law currently says,” she said.

“So, for SMSFs, we’re not intending to extend it and we think trustees have had a number of years to understand what the rules are and how they should be engaging in an arm‘s-length way.”

She also said the ATO would review its position following the government’s response to the NALE review, but was unable to predict what that might be at present.

“We don’t know what the government’s response will be and we could wargame lots of scenarios on ‘what if this or that happens’, but we will watch that very closely,” she said.

“We are acutely aware of the need to engage and communicate with the industry, but we are saying today we don’t expect to extend the PCG and there should be no uncertainty about that position now.

“We will wait to see what happens and think about how we best get messages out, but there are too many hypothetical scenarios to wargame now.”

The PCG was last extended in June 2022 and during the presentation SMSF Association deputy chief executive and director of policy and education Peter Burgess noted its ongoing existence indicated there was a problem with the NALE provisions and the best solution was an amendment to the law.

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