Political support to address issues with the non-arm’s length expenditure provisions sees the ATO extend transitional compliance.
Super funds given another year of NALI grace
Compliance resources will not be targeted at superannuation funds involved in non-arm’s length income (NALI) provisions in the next financial year, the ATO said, effectively extending its transitional treatment until 30 June 2023.
“The extension will provide the community with greater certainty on our administrative approach while we work on resolving the concerns of industry,” the ATO said in an online update.
The ATO will issue an updated version of PCG 2020/5 this Friday (10 June), it said.
The decision comes after the former Coalition government said it would change the provisions so that they operate as envisaged and the new Labor government indicated it also supported amendments to avoid onerous outcomes for “unintended misdemeanours”.
PCG 2020/5 was first issued in May 2020 following controversy about the Tax Commissioner’s general expense nexus view.
DBA Lawyers senior associate Shaun Backhaus reminded SMSF professionals and trustees that the ATO’s administrative concessions in PCG 2020/5 are only relevant to a lower general expense that gives rise to NALI.
This meant that where an SMSF purchased an asset at less than market value it could result in all future income and capital gains from the asset being taxed as NALI.
Mr Backhaus said the ATO announcement provided some welcome temporary relief for the general expenses issues.
“However, the ATO may still apply NALI if its usual compliance activities detect it. A legislative fix is therefore urgently needed,” he said.
He said advisers should take steps to minimise the risk of the NALI provisions applying and ensure appropriate documentation existed to confirm that all dealings were at arm’s length, particularly services that may give rise to a general expense risk.
The ATO decision overturns statements by assistant commissioner Justin Micale in March that the law needed to be administered as it currently stands.
The compliance relief provided in relation to NALI under PCG 2020/5 was previously due to cease at the end of this month.
The scope and the timing of any potential legislative change remain unclear.