The proposed non-arm’s-length expenditure (NALE) changes go beyond the scope of what is necessary to deal with the problem, according to the Institute of Financial Professionals Australia, which has continued to push for a repeal of the rules rather than further changes.
IFPA head of superannuation and financial services Natasha Panagis said the NALE changes contained in the Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Bill 2023 currently before parliament do not address issues created by the introduction of the NALE rules in 2019.
“It must be remembered that the NALE amendments came about due to non-arm’s-length related-party loans and the drafting of the NALE legislation, combined with the ATO’s approach in Law Companion Ruling 2021/2, will operate beyond the policy intent and disproportionately impact Australians compared to the mischief it was intended to discourage,” Panagis said.
In a submission to the Senate Economics Legislation Committee review of the bill, IFPA noted the explanatory memorandum also highlights the changes were meant to be less expansive than the two-times factor tax bill being put forward.
“The explanatory memorandum … makes it clear that the government was attempting to deal with the issue of zero or low interest rate related-party loans,” IFPA stated in the submission.
“The forward estimates expressly state the revenue the government expected to collect was in relation to the interest that would have been collected on zero or low interest rate loans had they been on arm’s-length terms.
“For this reason, our association believes the NALE changes were not intended to be, and should be, as broad and far reaching as what has eventuated.”
The body reiterated its call for the proposed legislation to be dropped and the NALE rules within the Income Tax Assessment Act 1997 to be repealed to their pre-2018 terms, noting ATO Taxation Ruling 2010/1 already addresses where an amount has been undercharged or not charged to a fund, with the shortfall amount deemed to be a contribution to the fund.
It also repeated its call that SMSFs should, like Australian Prudential Regulation Authority-regulated funds, be exempt from the NALE regime and the two-times factor dropped with non-arm’s-length income (NALI)/NALE taxes applied only to additional income or underpayment of expenses, while trustees should also be able to rectify breaches without the application of NALI.
