Draft legislation that includes the non-arm’s length expense (NALE) changes has been stuck in Parliament for several years and the legislation has retroactive effect 1 July 2018.
The Bill had been held up in the Senate following debate over the instant asset write-off threshold. The Coalition had been pushing for it to cover purchases worth $30,000 and apply to a greater number of businesses, and secured Senate support for those amendments in March.
But those changes were knocked back by the House of Representatives, putting the legislation in limbo as the cut-off date drew closer.
Yesterday the Bill was passed with amendments under the Income Tax (Transitional Provisions) Act 1997 to increase the instant asset write-off threshold from $1,000 to $20,000 for the 2023–24 financial year and provide small and medium businesses with access to a bonus tax deduction for the 2023–24 financial year relating to electrification and more efficient energy use.
Additionally, it will allow the Income Tax Assessment Act 1997, Taxation Administration Act 1953 and A New Tax System (Australian Business Number) Act 1999 to facilitate certain community charities achieving deductible gift recipient status.
The bill should soon receive Royal Assent but that is contingent on that being completed by close of business on 30 June. If it is after 30 June, it will not become law until October.
When it becomes law, reduce the tax impact where a lower or nil general expense is incurred by an SMSF by imposing an upper cap on the amount that is taxed as non-arm’s length income (NALI) under s 295-550(1)(b) and (c) of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997).
This cap is in the form of a two-times multiplier of the amount of the lower general expense for an SMSF or a small APRA fund.
The commencement date of the NALE provisions imposing the upper cap is likely to be 1 July 2024 said Daniel Butler, director of DBA Lawyers.
Butler added that firms that have offered staff discounts during the current financial year should still ensure they have a documented staff discount policy in place as the ATO administrative position in PCG 2020/5 ceased to apply from 30 June 2023.
“The EM to the bill explained that Sam who provided $3000 of improvements to his SMSF’s rental property tainted the income and capital gain forever with NALI,” he said.
“Advisers therefore need to warn SMSF clients that any specific expense can have substantial and disproportionate ramifications to an SMSF. The non-arm’s length income (NALI) can taint an asset for life with a 45 per cent tax rate. In contrast, a general expense NALE will soon have a capped tax outcome.”
Butler said industry bodies would still like to see changes to make “NALI fairer, proportionate and to provide for honest oversights as the NALE changes have not satisfied their requests”.
