Reform of Non-Arm’s Length Income and Expense Rules

Further to recent correspondence, meetings and discussions with Senator Hume’s office, Treasury and the Australian Taxation Office (ATO), we write to request Treasury urgently support the need to amend the existing non-arm’s length income (NALI) and non-arm’s length expenditure (NALE) rules in section 295-550 (the provision) of the Income Tax Assessment Act 1997 (ITAA 1997).

Following the release of the ATO’s recent Law Companion Ruling LCR 2021/2 (LCR) and Practical Compliance Guideline PCG 2020/5 (PCG), it has become evident that the administration of the provision is broader than the original policy intent.

On this basis, the Professional Bodies (Bodies), as noted in Appendix A, either separately or together, have engaged with Senator Hume’s office, Treasury and the ATO on numerous occasions to raise concerns with the ATO’s interpretation and broad implications of the provision.

We refer to various previous meetings and correspondence with the Treasury and the ATO for background. The Bodies’ technical concerns with the operation and administration of the provision and the detailed background are most clearly set out in a joint letter dated 3 September 2021 from the Bodies to Senator Hume.


Submission prepared by:

The Tax Institute

Submitted to:

Retirement Income Policy Division
The Treasury

For more information, contact:

Andrew Mills
Executive Director, The Tax Institute
02 8223 0005

Published: 22 December 2021