iscoverThe SMSF Association has welcomed a long-awaited ruling from the ATO regarding non-arm’s length income and contributions.
ATO NALI ruling is welcome, but gaps remain, SMSF Association says
01 October 2025
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8 minute read
Last Wednesday (24 September), the Commissioner of Taxation published its rulings on non-arm’s length income (LCR 2021/2) and contributions (TR 2010/1).
Peter Burgess, CEO of the SMSF Association, said that the ruling had provided welcome certainty to trustees and advisers.
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“These rulings are welcomed for giving certainty in areas that have been frustrating trustees and their advisers for some time,” he said.
“It is pleasing to see the ATO clarify that the non-arm’s length income (NALI) provisions will not apply in situations where an SMSF trustee has provided a service to their own fund but is unable to charge their fund a fee without breaching the Superannuation Industry (Supervision) Act 1997.”
The ruling also clarified that NALI provisions would not apply to services relating to an SMSF’s tax affairs that fell within section 25-2 of the Income Tax Assessment Act 1997.
However, Burgess said it was disappointing that the NALI provisions would not apply to other issues covered by LCR 2021/2, including valuations.
“Valuations remain one of the most pressing. While the ATO’s existing guidelines are a useful tool for determining the value of fixed assets such as property, they provide little assistance when it comes to valuing services,” he said.
“Furthermore, the rulings fail to clarify whether using a market value within an acceptable range is sufficient, instead appearing to require trustees to justify a single value point – a rigid approach that risks leaving them exposed when commonsense flexibility is needed.”
NALI provisions could also be activated by unintended or minor undercharging of capital expenses in relation to a specific asset of an SMSF, Burgess said. He called for a more pragmatic approach in this area and warned that the current set-up punished minor errors with lifelong tax consequences.
“It is difficult to comprehend that a minor undercharging of a capital expense, such as replacing a single vanity in a property owned by an SMSF on non-arm’s terms, could result in the entire capital gain on that property being taxed as NALI when it was eventually sold,” he said.
“We think the ruling was a missed opportunity for the ATO to consider safe harbour or de minimis thresholds to avoid small and often inadvertent oversights that may permanently expose all income and capital gains from an asset to the punitive 45 per cent tax rate.”
Burgess said the SMSF Association would continue to push for clarity in the ATO’s approach to compliance, including more practical examples to help with compliance.
“We will continue to engage with the ATO – pushing for clearer and more practical compliance settings that give trustees and industry the confidence to operate without fear of ATO compliance action or disproportionate consequences for inadvertent or minor errors,” he said.
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