Clarity sought on NALI/CGT ruling


The SMSF Association has called on the ATO to clarify the draft ruling on the interaction between non-arm's length income and the capital gains tax regime.

The SMSF Association has raised concerns about the draft tax determination released by the ATO regarding the interaction between non-arm’s length income (NALI) provisions and the capital gains tax (CGT) regime.

SMSF Association chief executive Peter Burgess believes the recently released draft ruling TD 2023/D1 contradicts the common understanding of NALI regulations and suggested the regulator should provide clarity on how the draft determination may operate, particularly in scenarios involving property improvements and retirement income in an SMSF.

“The industry’s long-standing belief has been that where a capital gain arises because of non-arm’s length dealings, you only treat as NALI the net capital gain that relates to that particular CGT asset,” Burgess explained.

“By contrast, the view expressed by the ATO in draft TD 2023/D1 how NALI and CGT provisions interact to determine the amount of statutory income that is NALI, is that the NALI capital gain can taint other capital gains incurred by the fund in the same income year.”

“The NALI provisions may have evolved over the years, but we do not believe that it has ever been the government’s intent to apply penalty tax rates to a genuine arm’s length capital gain,” he noted.

“We will continue to consult with the ATO before this determination is finalised to get more clarity on why alternative views are being overlooked.”

On a separate matter, Burgess also expressed disappointment over the government’s decision to end the temporary Australian Securities and Investments Commission (ASIC) levy relief program for financial advisers, suggesting more professionals could decide to leave the sector as a result.

“This fee increase is a heavy blow for the advice industry, coming at a time when industry is actively consulting on the Quality of Advice Review (QAR) recommendations and working out how the advice process can be improved to make it more cost effective and accessible to more Australians,” he noted.

“The exodus of advisers from the sector is well documented and this latest fee increase will have a significant financial impact on those who remain in the sector under ASIC’s cost recovery model.

“Particularly in the current economic climate, these cost increases are not sustainable, and we would urge ASIC and the government to rethink this decision.

According to Burgess the financial advice sector currently needs a period of stability allowing it to focus on the QAR recommendations, a review of the education and entry pathways to consolidate practitioner numbers and ensure a healthy and sustainable future and not a hefty regulatory fee increase.

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