Late last month, Treasury released some proposals for amending the non-arm’s length income provisions in relation to expenses of a general nature.
Treasury has proposed that SMSFs would be subject to a factor-based approach wherein the maximum amount of income taxable at the highest marginal rate would be set at five times the level of the general expenditure breach.
Following the release of proposed amendments, calls from industry have emerged for the ATO to extend the transitional relief provided through PCG 2020/5 for general expenses for a further year.
With the amendments unlikely to be legislated ahead of 30 June 2023, the Tax Institute and DBA Lawyer’s director Daniel Butler said an extension to PCG 2020/5 would be appropriate to ensure funds have time to prepare.
Speaking at the SMSF Association National Conference, ATO deputy commissioner, superannuation and employer obligations Emma Rosenzweig was asked whether the ATO would consider extending the transitional relief past 30 June if there isn’t a legislative fix implemented by then.
Ms Rosenzweig said the ATO does not intend to extend PCG 2020/5 beyond 30 June this year for SMSFs.
“It’s been in place for a number of years already and the PCG has never been about an interpretation of the law, we’ve always had a clear position on how the law operates.”
“I understand there have been concerns raised and that’s what’s being consulted on, about whether that’s the right policy, but it is what the law currently says.”
Ms Rosenzweig said trustees have had a number of years to understand what the rules are and how they should be applied.
“So, we’re not intending to extend it.”
Industry has already raised a number of concerns about the proposed amendments to the non-arm’s length income provisions, with some professionals fearing it will do nothing to alleviate red tape.
Industry associations have highlighted that the proposed measures would effectively create a tax rate of 225 per cent to any discount on a non-arm’s length expense, even where it’s a relatively minor breach.
The SMSF Association also expressed concerns about the application of a different tax treatment for SMSFs versus APRA-regulated super funds.
“It is also our position that tax neutrality across the superannuation industry should be maintained,” said SMSF Association deputy chief executive Peter Burgess previously.
