In a joint submission to Treasury on the Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Bill 2023, CA ANZ, CPA Australia, the Institute of Public Accountants, the SMSFA, and The Tax Institute said they recommend Schedule 7 of the bill be removed.
In its submission, the joint bodies said the “policy proposed to be implemented by Schedule 7 to the Bill aims to alter, rather than eliminate, measures that were put in place to address concerns that are now outdated”.
It continued that if they remain, it will result in a “two-tiered” superannuation system.
The submission continues the Bill fails to address issues arising from the interplay between the non-arm’s length income (NALI) provisions and the NALE framework for superannuation funds and specific expenses.
In its February submission on the bill, the joint bodies stated they had suggested a simpler, more effective long-term solution than what is proposed by the bill which would eliminate continuing concerns.
“Initially, the NALI policy aimed to impose income tax penalties on superannuation funds involved in non-arm’s length transactions,” it stated.
“It was not intended to bypass contribution caps, as implied in the Consultation Paper released in January this year. Likewise, it was not designed to permit superannuation fund members to exceed their transfer balance cap.”
The submission continued that the amendments in the Bill propose to introduce a differentiation between key sectors of the superannuation industry concerning taxation.
“Exempting large APRA-regulated superannuation funds in relation to general and specific expenses within the NALI/E regime creates a dual tax regime, thereby entirely separating the treatment of different types of superannuation funds,” it said.
“This differential treatment raises concerns, particularly since the trustees of all superannuation funds are held to the same standard regarding legal obligations, such as the statutory best financial interests duty, common law fiduciary duties, and the sole purpose test, making the inconsistency in treatment questionable.”
The joint bodies proposed the repeal of the 2019 amendments to section 295-550 of the ITAA97 and a return to the previous legislative provisions.
“Any remaining concerns about non-arm’s length arrangements in any superannuation fund can be handled by the Australian Taxation Office (ATO) and the superannuation sector in accordance with the current version of ATO Taxation Ruling TR 2010/1, which uses the contributions framework to address such breaches,” it said.
It continued that the proposed alteration in the rules regarding general expenses should be considered with caution.
“This change would cap any potential NALI at a maximum of a ‘two times multiple’ and limit the NALI to the taxable income of the fund,” it stated.
“It is our view that this cap has the potential to result in unfair outcomes. We consider that TR 2010/1 takes a sensible approach by treating minor breaches of the NALE rules as contributions.”
Regarding the treatment of specific expenses, the joint bodies said they are “deeply concerned” that the handling of specific expenses for SMSFs and SAFs remains unaltered in the bill.
“The Bill has not taken into account the many issues we have raised throughout the various stages of consultation regarding the treatment of specific expenses under the NALI/E framework,” it said.
“It is our view that these problems will continue to create uncertainty if the legislation is passed in its present form.”
