The controversial amendments proposed by the Federal Government to the non-arm’s length expenses provisions of the tax law are now before Federal Parliament in Schedule 7 of the Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Bill 2023. We reported on the details of these proposed changes in Superannuation Solutions Newsletter 18.
Chartered Accountants Australia and New Zealand, CPA Australia, Institute of Public Accountants, SMSF Association and The Tax Institute have made a joint submission to the Senate Standing Committee on Economics. Not surprisingly, the submission is highly critical of the legislation.
There has been a long-running debate between the Federal Government and professional bodies about the problems associated with the 2018 NALE provisions and whether there is a need for them at all. The joint bodies made a submission in February when the legislation was at the exposure draft stage. The latest comments basically echo their earlier criticisms, claiming that the proposals only alters legislation that is now outdated.
Under the draft legislation, large APRA funds (mainly retail funds, industry funds and tax-exempt public sector funds) will be completely exempted from the NALE rules for both general and specific expenses, but will still be subject to the original NALI provisions. The submission argues that “This differential treatment raises concerns, particularly since the trustees of all superannuation funds are held to the same standard regarding legal obligations, such as the statutory best financial interests duty, common law fiduciary duties, and the sole purpose test, making the inconsistency in treatment questionable.”
For funds with 6 or fewer members (including SMSFs), a distinction will be made between expenses that do not relate to any particular asset or assets of the fund (general expenses) and expenses that relate to a particular asset. Where a NALE general expense has been incurred, the maximum amount of fund income that can be treated as NALI will be twice the difference between the amount that would have been incurred as an arm’s length expense and the amount that was actually incurred by the fund, but this will be capped at a maximum of the fund’s taxable income not including assessable contributions.
The submission asserts:
It is crucial to prioritise efficiency, equity, and simplicity when formulating tax laws and policy.
The Joint Bodies recognise that there is often a trade-off among these principles. For instance, dealing with an integrity issue may necessitate complex rules, and a judgment must be made on whether the benefits of including an integrity rule outweigh the costs of increased complexity in administering that rule. Above all, equity should not be compromised when implementing integrity measures.
For the past three years, the superannuation sector, tax professional associations and industry, have strongly advocated for these concerns to be addressed, recognising that these rules are potentially detrimental to the retirement savings of Australians.
We would expect the Bill to pass the House of Representatives. The success or otherwise of these proposals now seems to depend on the judgement of the opposition and cross bench parties in the Senate.
