Non-arm’s length expenses – changing old habits

Over time tax law has evolved to disincentives certain income from being diverted into SMSFs or to discourage trustees from engaging in certain practices to enhance their superannuation balance and reduce their tax liability. Having certain income treated as non-arm’s length income (NALI) and being taxed at the highest marginal tax rate, is intended to be the disincentive in the otherwise concessionally taxed super environment. To broaden the scope of NALI, the Government have introduced the concept of non-arm’s length expenditure (NALE) which requires a fund to ensure that not only is all income derived on a commercial basis but that all expenses associated with fund income are commercial. These new NALE provisions apply from 1 July 2018.

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