Changes to non-arm’s length income (NALI) rules for SMSFs

SMSFs pay tax on ‘non-arm’s length income’ (NALI) at the top marginal tax rate, rather than the concessional rates that usually apply to income earned in SMSFs.

The Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2018 has been introduced to extend NALI to include where the SMSF has entered into an arrangement where the parties are not dealing at arm’s length and either:

• the SMSF’s expenses are less than would have been incurred had the parties been dealing at arm’s length; or
• there is no loss, outgoing or expense incurred by the SMSF where one would have been expected if the parties had been dealing at arm’s length.

If passed, the new rules will apply from 1 July 2018.

This Bill implements a 2017 Budget announcement, an exposure draft of which was released in January 2018.

For more details of the proposed change, see our earlier alert here.

The ATO is coming to help

The ATO has been focussing on related party transactions and NALI for some time. As a result, SMSF trustees and advisers should scrutinise their investments to ensure all expenses are the same as if there had been a dealing on an arm’s length basis. This includes arrangements that were implemented before 1 July 2018 and continue after this date.

To discuss how you or your clients may be affected by this proposed change, contact a member of our superannuation team.