LCR 2021\/2<\/a>, the extension to NALI rules requires identifying a nexus between the non-arm’s length expenditure of a superannuation fund and the relevant amount of ordinary or statutory income derived. In analysing this nexus, the ATO noted that \u2018in some instances, the non-arm’s length expenditure will have a sufficient nexus to all of the ordinary and\/or statutory income derived by the fund\u2019[1]. Clearly this could result in all the income of a superannuation fund being classified as NALI and taxed at 45 percent, even where the expense breach was relatively minor.<\/p>The changes proposed in the Bill ameliorate the disproportionate outcome by introducing a cap on the amount of income that is taxed at 45 percent. The Bill does not change the treatment of the NALE rules for expenses incurred in earning income from a particular asset.<\/p>
The Bill also ensures that the NALE rules will only apply to SMSFs and small APRA funds. Large APRA funds are exempted from the NALI rules to the extent that they relate to NALE. However, they will still be subject to the remaining non-arm\u2019s length income rules for income derived on a non-arm\u2019s length basis.<\/p>
Key changes from the exposure draft legislation <\/strong><\/p>The changes proposed in the Bill were originally contained in Treasury Laws Amendment (Measures for Consultation) Bill 2023: Non-arm\u2019s length expense rules for superannuation funds<\/em>. While mostly the Bill as introduced into parliament aligns with the exposure draft, there are two key differences.<\/p>- The exposure draft specifically carved out expenses of a capital nature from the proposed concessional treatment for general expenses. This exclusion has been removed from the Bill, meaning all expenses of a general nature are treated the same.<\/li>
- The commencement date has been amended to 1 July 2018, rather than from the 2023-24 income year.<\/li><\/ol>
Types of expenses<\/strong><\/p>Specific expenses are those that relate to earning income from a particular asset of the fund. Specific expenses include:<\/p>