NALE rules have 'much broader implications’ for super sector then intended

Speaking at the 2022 SMSF Association National Conference this week, the SMSF Association’s deputy CEO and director of policy and education, Peter Burgess, has criticised the rules which are designed to prevent superannuation funds from circumventing contributions caps and artificially inflating fund earnings through non-commercial dealings.

“These rules have much broader implications for the entire superannuation sector then was originally intended and, in some circumstances, could result in all of the fund’s income being taxed at 45 per cent,” Mr Burgess said.

“Prior to the introduction of the NALE rules we were certainly not coming across SMSF members who were undercharging for services provided to their fund as a deliberate strategy to circumvent the contribution caps or to artificially inflate the fund’s investment earnings.

“So, if we need to have these rules, it is imperative they are appropriately targeted and are fit for purpose.”

“In our view, amendments are needed to exempt general expenses from these provisions, and ensure penalties only apply to expenditure shortfall amounts rather than to some or all of the fund’s income.”

Specifically, Mr Burgess said the linking of NALE to some or all of the fund’s income, and then applying penalties to that income, could result in poor outcomes.

“The penalty could be treating the shortfall amount as a taxable contribution or dealing with it through the contributions regime.”

“So, the solution may well lie in the amendments the ATO are currently making to contribution ruling TR 2010/1, which is now expected to be released in the second half of 2022”, Burgess said.

Last month, the Morrison government confirmed it will consult on the laws, noting previously raised concern from industry stakeholders, which the SMSF Association has welcomed.

In its pre-budget announcement, the government made good on its promise to change NALE rules, which is expected to be applied from 1 July 2022.

“We were pleased to see this announcement and we look forward to a bipartisan approach to addressing this issue and ensuring the rules work as intended,” Mr Burgess said.

Neil Griffiths

Neil is the Deputy Editor of the wealth titles, including ifa and InvestorDaily.

Neil is also the host of the ifa show podcast.