Super fund NALE rules – Govt discussion paper released

The Government has released a consultation paper on options to amend the non-arm’s length expense (NALE) provisions for superannuation funds to ensure they operate as intended.

The paper sets out potential policy changes to the non-arm’s length income (NALI) and NALE provisions in s 295-550 of the ITAA 1997, where they relate to general expenses which have a sufficient nexus to all income derived by the fund. While the Government believes the NALI rules are operating “broadly as intended”, it accepts that severe outcomes can result for some super funds in relation to general expenses.

For SMSFs and small APRA funds, the paper proposes a factor-based approach whereby the maximum amount of fund income taxable as NALI at the highest marginal rate (45%) would be 5 times the level of the general expenditure breach. Large APRA-regulated funds are proposed to be exempted from the NALI provisions for general expenses.

DATE OF EFFECT: The changes are proposed to apply from 1 July 2023, following the expiry of the ATO’s transitional compliance approach for general expenses (PCG 2020/5) for the period 2018-19 to 2022-23.