New NALE guidance still has issues
The ATO has released its updated Law Companion Ruling (LCR) 2021/2 regarding the application of non-arm’s length income (NALI) laws with the SMSF Association giving it a mixed welcome noting it still lacks specific guidance in places.
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The LCR 2021/2 was released yesterday, along with Taxation Ruling 2010/1 – which addresses non-arm’s length arrangements in regards to superannuation contributions, with the industry body hailing changes it had proposed.
“It was pleasing to see the ATO address some of the feedback provided by the SMSF Association including, for instance, by making it clearer that when dealing with the provision of services, the NALI provisions do not apply to services that relate to complying with, or managing, the SMSF’s income tax affairs and obligations – which are ordinarily deductible under section 25.5 [of the Income Tax Assessment Act (ITAA) 1997],” the industry body stated.
Speaking at the Class Ignite 2025 event in Sydney today, SMSF Association chief executive Peter Burgess added the guidance was appreciated but also limited in scope.
“We were hoping to see this [provision of services issue] explained in more detail in the ruling and what we did see is a footnote,” he said.
“They have added a footnote to clarify that when they are talking about expenses, they are not talking about expenses deductible under section 25.5.
“When talking in the context of services provided by accountant, give us some examples as to what services we are providing to an SMSF that are not deductible under section 25.5 because most of the things we do are [under that section].”
“We wanted the ATO to make this clearer because we’ve already seen two private binding rulings issued on this issue of a partner in an accounting firm who provided services to his own SMSF on non-arms length terms and the question was whether it was NALI?
“They went into great detail about if the service being provided was in the capacity of a trustee or a professional and our argument is that’s irrelevant because if it’s a service deductible under section 25.5, these provisions don’t apply anyway.”
The peak sector body added the final rulings also clarified the interaction between contributions arising through value shifting arrangements and the NALI provisions but lacked any information as to how NALI breaches could be addressed by an SMSF.
“Most disappointingly, the compendium to LCR 2021/2 makes it clear that the Commissioner does not consider there is room for rectification nor reimbursement to fix a transaction that gives rise to non-arm’s length expenditure – resulting in a potentially small trustee oversight leading to significant tax penalties for the fund.”
September 25, 2025
Jason Spits
smsmagazine.com.au
