After a number of years in the making, the changes to the non-arm’s length expenses (NALE) rules have now passed through Parliament. While, as previously noted, the changes did not go far enough for many of the tax industry, and accounting bodies, the changes offer some relief to taxpayers.

Under the changes self managed superannuation funds (SMSFs) and small-APRA super funds (SAFs) will be taxed on general expense NALE on a 2 x multiple (ie an effective tax rate of 90%) on the undercharging/non-charging amounts of NALE. Large APRA superannuation funds will be exempted from the NALE regime (for both general expense and specific expense NALE). SMSFs and SAFs will continue to pay a full 45% tax rate on specific expense NALE, while all superannuation funds will continue to pay full 45% rate on “normal” non-arm’s length income (NALI).

In addition, the changes ensure that the NALE rules will only apply from 1 July 2018.

So, where does that leave us?

SMSF trustees will have to ensure related party dealings are conducted on arm’s length terms and, to satisfy the ATO, with appropriate benchmarking evidence. They will also have to navigate the grey zone of whether actions are undertaken in a trustee/director role or not, as described in LCR 2021/2 and discussed here.

Phil Broderick
Principal
M +61 419 512 801 | T +61 3 9611 0163
E: pbroderick@sladen.com.au

Terence Wong
Senior Associate
T +61 3 9611 0112 l M +61 0458 846 022
E twong@sladen.com.au