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‘Common sense’ needed in NALE conversation, says ATO


The ATO wants industry to focus on the big issues with non-arm's length income and expenditure.

By Miranda Brownlee 10 minute read

The ATO recognises there are issues over non-arm’s length expenditure (NALE) in super but says the conversation needs to be guided by “a bit of common sense”.

The law did not cover every possibility and getting hung up over details was missing the point, ATO assistant commissioner Nadia Alfonsi said.

“We’re dealing with a situation, particularly in the SMSF space, where the member and trustee have ultimate control over their retirement savings and what they can do with that asset,” Ms Alfonsi said during a panel discussion at the Tax Institute National Superannuation Conference.

“So, there is a difference between a practical approach that the Commissioner can take versus prescriptive guidance.

“We’re not going to be able to give you [specific] guidance around the toilet roll or the towel rack and all the different kinds of work you can do to a property, for example.

“I think a bit of practicality or common sense has to come into the conversation and let's concentrate on what those real concerns of industry are going forward.”

Ms Alfonsi said the conversation on NALE and non-arm’s length income (NALI) should “focus on the right areas”.

“We don’t want to get bogged down in ‘what happens if I use my email or what happens if I get my pencil for 50 cents rather than a $1?’ ” she said.

“The law doesn’t cover everything, but the ATO definitely understands the concerns and outcomes that can apply to both large funds and SMSFs. That’s why we have taken this practical compliance approach.”

Ms Alfonsi said the ATO would refrain from looking closely at the subject until it got more clarity from the government.

“So let’s continue the cooperation, but let’s have a very practical conversation around what the go forward will look like and what the actual problems are,” she said.

With the relevant practical guidance, PCG 2020/5, ending on 30 June 2023 and potential legislative changes regarding NALE still uncertain, Ms Alfonsi advised both SMSFs and APRA-regulated funds to “get prepared” and understand the arrangements they were entering.

“Accept the fact that if you are going to go into a deal and it’s at non-arm's length, there is going to be some extra paperwork to do and that is the price that we pay for a concessionally-taxed environment,” she said.

In March, the previous government said it would consult with stakeholders on the NALI provisions, following lobbying from industry.

The ATO decided to extend its compliance relief relating to NALE of a general nature following the announcement.

It is understood Labor also supports making changes to NALI provisions in order address some of the penalties, but there has been no official announcement as the outcome is unclear.

Speaking on the panel, Cooper Partners Financial Services director Jemma Sanderson (pictured) said that once there was draft legislation on changes in this area, there would still be delays.

“The draft will be open for submissions and consultation and then there might be changes to it so any legislative probably won’t happen for a few months,” she said.

“This year it isn’t really at the top of the priority list, even though industry is pushing for it to be.”



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