In its submission to the Senate Economics Legislation Committee, the IFPA said it did not endorse the measures contained in the bill as they fail to address a number of critical issues caused by the 2019 amendments that introduced the NALE provisions.
IFPA’s head of superannuation and financial services, Natasha Panagis, said there are serious flaws with the bill’s intent, design and implementation of the NALE rules.
“The proposed legislation is overly complex, and the proposed amendments will make the NALE rules even more difficult for taxpayers and their advisors to interpret,” she said.
“It must be remembered that the NALE amendments came about due to non-arm’s length related party loans and the drafting of the NALE legislation.”
She added these amendments, combined with the ATO’s approach in LCR 2021/2, will operate beyond the policy intent and disproportionately impact Australians “compared to the mischief it was intended to discourage”.
“It is unnecessary to introduce a new penalty tax regime of using a 90 per cent effective tax rate as a deterrent as the superannuation system already has sufficient regulatory tools to deal with non-arm’s length dealings,” she said.
The IFPA’s submission focused on Schedule 7, which makes changes to NALE rules that relate to super funds.
“We have long raised our concerns in relation to the application of the NALE rules and the non-arm’s length income,” the submission stated.
“In particular, we have examined the Bill and explanatory memorandum materials in detail and remain opposed to the government’s proposed NALE rules for superannuation funds.”
The IFPA said the explanatory memorandum to the Bill that introduced the NALE provisions makes it clear that the government was attempting to deal with the issue of zero or low-interest rate-related party loans.
The Association made six recommendations in its submission including that the NALE rules should be abolished.
It proposed the NALE rules be repealed so the law (295-550 ITAA 1997) is brought back to its pre-1 July 2018 terms, and instead use existing regulatory tools to deal with non-arm’s length dealings.
It should also treat non-arm’s length dealings as contributions per taxation ruling TR 2010/1 and amend section 109 of the SIS Act to prevent superannuation funds from entering into non-arm’s length transactions.
Importantly, the government should also rely on an annual audit to review an SMSF trustee’s compliance with the SIS Act and the SIS Regulations.
Secondly, the IFPA said SMSFs should also be exempt from the NALE regime.
“Exempting large APRA-regulated funds for both general expenses and specific expenses NALE but subjecting SMSFs and SAFs for both general and specific expenses of the fund is unfair,” it said.
“The proposal as it stands will result in an unlevel playing field between APRA-regulated funds and smaller funds and does not promote tax neutrality/equality across the superannuation sector.”
It proposed that SMSFs be granted the same carve-out as that of large APRA-regulated funds and that the NALI tax penalty should only apply to the extent of any undercharge or non-charge amount of NALE.
The other three recommendations the IFPA made included not legislating the two times multiple concepts stating there should be consistency between general and specific expenses.
Additionally, it recommended that NALI and NALE be made proportionate and that trustees should be able to rectify breaches without the application of NALI.
