Boost SIS Act to address NALE

SMSF NALE NALE SIS Act Senate committee

An existing piece of legislation can be tweaked to carve out a specific treatment for non-arm’s-length arrangements for SMSFs without having to introduce a new and uneven super tax model.

A collective of five professional and industry bodies has called for a specific provision to be added to existing legislation to address the treatment of non-arm’s-length income and expenditure (NALI/E) in SMSFs rather than the government’s plans for an additional tax measure to apply.

In a joint submission to the Senate Economics Legislation Committee review of the bill, Chartered Accountants Australia and New Zealand, CPA Australia, the Institute of Public Accountants, the SMSF Association and The Tax Institute restated their call to scrap the NALI/E provisions proposed in schedule 7 of the Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Bill.

The bodies stated their inclusion would lead to a two-tiered treatment of taxation among Australian Prudential Regulation Authority (APRA) and SMSF funds and addressed concerns the group considered outdated.

Instead, they proposed a simpler approach would be to further amend section 109 of the Superannuation Industry (Supervision) (SIS) Act to provide further restrictions on non-arm’s-length arrangements for SMSFs, akin to a solution put forward by the SMSF Association earlier this year.

“If the government deems it necessary, amendments to section 109 of the Superannuation Industry (Supervision) Act 1993, which already prohibits trustees from engaging in transactions with any party unless they are conducted on arm’s-length terms, could offer additional safeguards,” the submission stated.

“We suggest that any amendment to section 109 of the [SIS Act] should apply only to self-managed superannuation funds and small APRA-regulated superannuation funds.

“We firmly consider that our proposed solution is the fairest, most practical and least disruptive among all the solutions put forth thus far. It represents a superior approach compared to establishing a differentiated tax treatment for various types of superannuation funds.”

The joint submission argued this solution would eliminate complexity in the treatment of NALI/E, particularly regarding the fulfilment of legislative, compliance and regulatory obligations for the two superannuation systems.

“Exempting large APRA-regulated superannuation funds in relation to general and specific expenses within the NALI/E regime creates a dual tax regime, thereby entirely separating the treatment of different types of superannuation funds,” it stated.

“This differential treatment raises concerns, particularly since the trustees of all superannuation funds are held to the same standard regarding legal obligations, such as the statutory best financial interests duty, common law fiduciary duties and the sole purpose test, making the inconsistency in treatment questionable.

“We do not endorse the unnecessary, disparate treatment of superannuation funds.”

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