The government has foreshadowed potential further amendments to the non-arm’s length income provisions in its budget papers, indicating that non-commercial transactions continue to be a strong focus area.
In the budget papers released last night, the government outlined that from 1 July, it will “further improve the integrity of the superannuation system by reducing opportunities for members to use related party transactions on non-commercial terms to increase superannuation savings”.
“The non-arm’s length income provisions will be amended to ensure expenses that would normally apply in a commercial transaction are included when considering whether the transaction is on a commercial basis,” the budget papers said.
The government said this measure is aimed at ensuring the 2016-17 superannuation reform package operates as intended.
It is estimated to have a gain to revenue of $20 million over the forward estimates period.
“At the moment, there are rules that basically say we need to look to see if the revenue that is generated is on an arm’s length basis, and if not there’s potential issues. What they’ve said, in doing that, is that it’s important the expenses associated with generating that revenue are also calculated on an arm’s length basis,” head of BT’s technical advice team, Bryan Ashenden, explained to SMSF Adviser.
Although the details are unclear at this stage, the SMSF Association’s Jordan George said it appears the government is trying to prevent SMSF members from using non-commercial investments or non-commercial loans to circumvent the non-concessional and concessional contribution caps.
“We need to see the draft legislation. It’s absolutely one of those measures where the fine print will be important,” Mr George told SMSF Adviser, adding that the government is set to consult on the measure.
Meanwhile, the SMSF Academy’s Aaron Dunn said non-arm’s length activities have continued to remain high on the regulator’s radar, with a focus on areas including related party LRBAs.
Mr Dunn said the ATO has also successfully challenged fixed entitlement to unit trust income by SMSFs in a number of cases.
“Whilst needing further details to understand the key areas these measures are looking to target, it remains abundantly clear that non-commercial transactions, in particular in light of restructuring for the super reforms, will remain a high priority,” he said.
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