Non-Arm’s Length Expenditure

Over time tax law has evolved to disincentivise 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.  As a result of super reforms and reduced contribution caps, the Government are concerned that people will look for new ways to get more funds into SMSFs using various schemes or strategies.  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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