The treatment of non-arm’s-length expenditure (NALE) in relation to a super fund’s costs incurred on capital account is unlikely to change without a court stating the rules are excessive and severe, SMSF Association chief executive Peter Burgess has said.
Speaking at the professional body’s recent Technical Summit 2025 in Sydney last week, Burgess noted while the treatment of general expenses had been resolved with the two-times shortfall payment model, capital expenses would still be subject to a 45 per cent tax on all forms of income.
“For example, where renovations are conducted on a property owned by an SMSF and charged on non-arm’s-length terms, the consequences of that under this law is when that property is sold, the fund will occur NALE on the total amount of capital gain, even though the renovation might be insignificant, happened a long time ago or just prior to the sale,” he said.
“We are continuing to push for some change and what we’re asking for is a proportionate approach so the NALE is in proportion to the cost of the renovation or the commissioner [of taxation] gives the trustees the ability to make good.
“[That means] if the fund charges a fee on non-arm’s-length terms and becomes aware of the problem, it can fix it by charging [a commercial] fee.
“We’re not getting very far with this. Treasury is not interested in coming back to the table to talk about NALE.
“In fact, we’re probably not going to see any progress here until we have a real case that goes through the court system and the courts rule the application of [this position] is severe and the legislation needs to change.
“Until we get to that point, I don’t think we’re going to have much success in convincing the policymakers to change the rules, but we will keep going with them on this issue.”
