Superannuation update: Non-Arm’s length expenditure changes receive Royal Assent (July 2024)

The Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Bill 2024 was passed by Parliament and became law after receiving Royal Assent on 28 June 2024. The Bill amends the application of the non-arm’s length expense (NALE) rules for super funds in those instances where a general loss or outgoing is less than what would ordinarily have been derived if the parties had dealt with each other at arm’s length. 

These amendments limit the amount of potential non-arm’s length income (NALI) that a superannuation fund can be assessed on in respect to non-arm’s length general expenses, by reducing the income that will be taxed at a penalty tax rate of 45%, to the rate of two (2) times the difference in the general expense incurred.

As a reminder, for specific expenses, the new lower rate multiplier of 2 will not apply and the entire amount of income derived from the scheme will continue to be taxed as NALI.

Importantly this legislation has also limited the application of the NALE rules to exclude general losses or outgoings incurred prior to 1 July 2018.

The other main change is that APRA-Regulated superannuation funds are now excluded from the NALE provisions in their entirety however will still be subject to the more broader NALI provisions.

Further information in respect to the application of the NALI rules can be found in our October 2023 and August 2021 Superannuation Updates.

What now for SMSF trustees?

Trustees of self-managed superannuation funds (SMSF) who are concerned that they may have incurred non-arm’s length expenditure or are at risk of incurring non-arm’s length expenditure should immediately review their ongoing arrangements and implement any changes required. Examples of arrangements that trustees should consider reviewing are noted in our June 2024 Update.

How can we help?

Health check

PwC can assist with a health check of the fund’s arrangements by discussing with you (in person or via video conference) your circumstances, how the rules apply and potential strategies to mitigate unexpected adverse outcomes. This can entail:

• a free review of arrangements within an SMSF or special purpose vehicle owned by an SMSF to determine if there is exposure risk to the NALI/NALE provisions, and  
• a review of charges by a related entity of an SMSF providing general expense services. 

Planning and advice

Following a review of arrangements where there is exposure risk to the NALI/NALE provisions, where it is determined that arrangements are not on arm’s length terms, PwC can provide an action plan to mitigate or reduce any exposure and bring arrangements onto arm’s length terms. 

Where there is a history of non-arm’s length dealings or the fund is currently under review by the Australian Taxation Office (ATO) for non-arm’s length dealings, we can work with you and the ATO to solve the problem.