SMSF Association calls for 'pragmatic approach' on NALI issues
The association wants to see the NALI rules applied to super funds in a measured and proportionate way.
The taxing of capital gains in relation to the non-arm’s length income (NALI) bill is the new front-line in the ongoing battle for the SMSF Association to ensure the non-arm’s length expense (NALE) provision introduced in 2019 works appropriately for SMSFs and small APRA funds.
In his keynote address to the SMSFA’s 2024 Technical Summit in Sydney, CEO Peter Burgess said although the passing of the Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Bill 2023 gave the industry “much-needed relief and certainty” with respect to general expenses, applying NALI rules to specific fund expenses remained a “vexed issue”.
“The recent passing of amendments to the NALI Bill was a step in the right direction, but important loose ends still need resolution,” he said.
“How is it fair or equitable to tax the entire capital gain from the sale of a property, which the SMSF may have held for many years, as NALI simply because the trustee did not incur an expense on commercial terms for a minor renovation? Taxing the entire capital gain as NALI is a severely disproportionate outcome.”
He continued that the SMSFA will continue to advocate for further legislative amendments to address the punitive approach of taxing realised capital gains that may have been impacted by a non-arm’s length capital expense.
“Trustees should, in certain situations, be given the opportunity to remedy the situation,” he said.
“We would also like to think there is scope for a measured and pragmatic approach, for example applying a proportionate approach rather than treating the entire capital gain as NALI.”
Burgess said the shortcomings still evident with the NALI rules should not detract from the legislative gains achieved.
“The recent amendment to the NALI rules that has now removed the potential for NALE to be applied retrospectively is commendable. Before these recent amendments it was possible that expenses incurred before 1 July 2018 could result in the application of the non-arm’s length expense rules,” he said.
“Despite the bill predominately focusing on general expenses, from what we can ascertain the amendment to remove retrospectivity also applies to specific expenses incurred before 1 July 2018.”
Burgess also used his keynote conference address to renew the SMSFA’s call for sensible amendments to the Better Targeted Super Concessions Bill.
“It’s critical that the parliament pass amendments that uphold the fundamental principles of our tax system,” he said.
