Speaking at a recent Tax Institute event, ATO assistant commissioner Nadia Alfonsi said the ATO recognises the issues surrounding non-arm’s length expenditure (NALE) and non-arm’s length income have not been easy for the industry and that the ATO has done its best to provide the level of guidance needed.
“We’re dealing with a situation, particularly in the SMSF space, where the member and trustee have ultimate control over their retirement savings and what they can do with that asset,” said Ms Alfonsi while addressing a panel discussion at the Tax Institute National Superannuation Conference.
“So, there is a difference between a practical approach that the Commissioner can take versus prescriptive guidance. We’re not going to be able to give you [specific] guidance around the toilet roll or the towel rack and all the different kinds of work you can do to a property for example.
“I think a bit of practicality or common sense has to come into the conversation and let’s concentrate on what those real concerns of industry are going forward.”
Going forward, Ms Alfonsi said she’d like to see the conversation around non-arm’s length income and expenditure “focus on the right areas”.
“We don’t want to get bogged down in ‘what happens if I use my email or what happens if I get my pencil for 50 cents rather than a $1’?” she said.
“The law doesn’t cover everything but the ATO definitely understands the concerns and outcomes that can apply to both large funds and SMSFs. That’s why we have taken this practical compliance approach.”
Ms Alfonsi said the ATO won’t be looking closely at this area until it gets some more clarity from the government.
“So let’s continue the cooperation, but let’s have a very practical conversation around what the go forward will look like and what the actual problems are,” she said.
With PCG 2020/5 coming to an end on 30 June 2023 and any potential legislative changes regarding non-arm’s length expenditure still uncertain, Ms Alfonsi also advised both SMSFs and APRA-regulated funds to “get prepared” and understand the arrangements that they’re entering.
“Accept the fact that if you are going to go into a deal and its at non-arm’s length, there is going to be some extra paperwork to do and that is the price that we pay for a concessionally taxed environment,” she stated.
In March this year, the former government announced it would consult with industry stakeholders about the operation of the NALI provisions, following lobbying from industry.
The ATO decided to extend its complacent relief relating to non-arm’s length expenditure of a general nature following the announcement.
While it is understood that Labor also supports making changes to the non-arm’s length income (NALI) provisions in order address some of the disproportionate penalties there has been no official announcement as yet and its unclear what the final outcome will look like.
Speaking on the panel, Cooper Partners Financial Services director Jemma Sanderson noted that even once does release draft legislation to make changes in this area, it will be a long process.
“The draft [legislation] will be open for submissions and consultation and then there might be changes to it so any legislative probably won’t happen for a few months. This year it isn’t really at the top of the priority list even though industry is pushing for it to be,” she said.
Ms Sanderson said both SMSFs and APRA-regulated funds will also need to make system changes to accommodate the changes once the legislation applies.
Unless a brave (courageous?) judge introduces a common law of defence of common sense in regard to ATO matters, or the Parliament enacts an anti-avoidance provision against the ATO (“Commissioner, you have created a ‘scheme’ to confect a tax obligation where common sense and equity dictate otherwise; we will therefore tear the revenue veil and look at the practicability of compliance”) this talkfest will carry on.
Agreed!
So it’s ok for the ATO to be petty and not use common sense but everyone else needs to use common sense. If we did that, we’d all end up losing half our super to the NALI tax. Seriously. What hat are you wearing if you do something for you SMSF, trustee or business owner/employee. Well duh obviously trustee. Who wouldn’t use the skills and tools available to them to perform simple tasks that are required for the running of the SMSF. But the ATO is saying the opposite. Where is the common sense. If it is improving your retirement situation, then why is it a problem? Why is it ok for other entities and individuals but not SMSFs?
If the ATO doesn’t want us talking about little things, please include a de minimus exemption in your PCG. Maybe saying anything under $200 won’t trigger NALE. Currently the ATO PCG says any general NALE issue taints the entire income, so its the ATO PCG that has started people talking about trivial items.
Perhaps $5K would be better. Then it would count out the majority of issues. $200 isn’t worth our time.
Somone needs to tell Nadia that it is YOUR fault these issues have arisen, not the profession’s, not the guardians of the superannuation system, not even government. All the issues created rest solely on your shoulders. It’s insulting that you use the term “common sense” when there has been none so far from the ATO
“I think a bit of practicality or common sense has to come into the conversation”.
Yeh no joke hey ATO, that’s what the whole industry has been telling you for years but you refuse to listen.
Typical bloody arrogant Government bureaucratic approach of – Do as I say, not do as I do.
How about ATO use “a bit
of practicality or common sense” :-/