A bill that will amend the treatment of non-arm’s-length expenditure (NALE) for superannuation funds was introduced into parliament yesterday, closely resembling draft exposure legislation released by Treasury in June.
Chapter 7 of the Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Bill 2023 stipulates the penalty for non-arm’s-length income (NALI) for general expenditure-related NALE will be double the difference between the market rate for services provided and the amount actually charged to an SMSF.
Consistent with the government’s previous statements on the matter, these legislative changes will also limit the application of NALE rules to SMSFs and small Australian Prudential Regulation Authority (APRA) funds with six or fewer members, with large APRA funds exempted from the provisions.
The bill also provides further clarity on the treatment of general expenses and specifies which activities will be considered as general expenses for the purposes of NALE.
SMSF Association head of policy and advocacy Tracey Scotchbrook said: “While the legislation is substantially unchanged from what we saw in the exposure draft, there are a couple of crucial changes and one of those is it addresses general expenses that are revenue or capital in nature.
“In the previous exposure draft it only talked about general expenses of a revenue nature. As we’ve started to have conversations around how this would apply, it became apparent that, of course, there are expenses that are general expenses that are capital in nature.
“This was really important to make sure they have the same treatment and the way this legislation has been drafted makes sure that it’s general expenses of all kinds, revenue or capital in nature.”
She said while the legislation is far from perfect, it is an improvement on the current NALE regime.
“We would have preferred to have seen these non-arm’s-length expenditures removed in their entirety, it’s ‘a sledgehammer to crack a walnut’ legislation, [but] at least we’ve seen some more practical outcomes and Treasury have really listened in the consultations given the government’s desire to push forward with these particular measures,” she said.
“[The NALE penalty] has come down from five times to two times and we’ve got that general expense definition clarified to a more practical solution.”
The revised version of the NALE provisions was first outlined in this year’s budget and the draft bill released for consultation on 20 June.
The bill is currently in the House of Representatives awaiting a second reading and has yet to enter the Senate, but if enacted by parliament, will commence on the first day of the quarter following royal assent.