Daniel Butler, director of DBA Lawyers, said the sector has been waiting for five years to get certainty on the law and although it was finally legislated mid-2024, it is now receiving further clarification by way of ATO guidance.
Butler said the guidance “is a good outcome” and means that the amendments made to the NALI legislation do not apply in relation to expenditure incurred before the 2019 financial year.
“This is really covering the nil events where expenditure might have been expected to have been incurred before that income year, so this is good from that point of view,” Butler said in a recent webinar.
“The prior legislation was open-ended. For example, if you had purchased a block of land 20 years ago and paid $200,000 for it as business real property in an underlying region of the CBD and today it’s worth $20 million all you may have had was flimsy evidence about valuations whereas today, the evidentiary requirements are much stricter.
“If you are audited, and you’ve got this $18-$19 million capital gain that’s being reported in your tax return, red lights are going to go off at the tax office asking you to prove that it’s not NALE.”
However, Butler continued that the legislation now allows a fund to state that this NALE was incurred “before the line” and is exempt.
He gave another example of Russell, who purchased listed shares for $500,000 during FY2019 at a specified market value.
“Russell has made it ‘before the line’. The ATO analysis would suggest if Russell purchased those shares on 30 June 2018, NALE should not apply,” Butler said.
“As mentioned, the ATO says that from 1 July 2019 these provisions apply to small funds and where they incur NALE that relates to a specific expense or a general expense. The NALE provisions do not apply to expenses before that date,” he said.
Specifically, Butler said the legislation now states that from 1 July 2018, the [NALE] provisions will apply to small funds.
“As explained later in this ruling, these provisions will apply where the small fund incurs a [NALE] that relates to a specific expense in respect of a particular asset or assets of the fund; is of a general nature that does not relate to a specific expense of the fund. [8B] The [NALE] provisions do not apply to expenditure incurred or expected to have been incurred before 1 July 2018.”
