Retirement & wealth Superannuation SMSF

Non-arm’s length expense rules for superannuation

Author: The Joint Bodies

Published Date: 23 Feb 2023


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The current version of the non-arm’s length income (NALI) provisions, found in Sec 295-550 of the Income Tax Assessment Act 1997 (ITAA97), were amended in 2019 with a commencement date of 1 July 2018. The 2019 amendments extended the NALI provisions to specifically deal with non-arm's length expenditure incurred by a superannuation fund.

The original policy intent of NALI was to apply income tax penalties to superannuation funds involved in specific non-arm’s length dealings.

Its purpose was not to circumvent contribution caps as detailed in the Treasury Consultation Paper (Consultation Paper).

The principles of good law design are efficiency, equity and simplicity. As the Tax White Paper said, “There will more often than not be a tension between efficiency, equity and simplicity when developing tax policy. For example, sometimes to address an integrity issue very complex rules may be needed, and choices have to be made as to whether the integrity benefits are worth the complexity cost.” Equity is not a principle that should be compromised with regards to an integrity measure.

The 2019 amendments and the (Consultation Paper) proposals do not satisfy the original purpose, the new purpose and good law design.

We believe we have a solution, which we detail in this letter, that follows the principles of good law design yet also provides adequate safeguards and proportionate penalties.

The current NALI provisions have been the source of considerable concern for the superannuation sector since their amendment in 2019, as acknowledged in your 24 January 2023 press release. These concerns need to be addressed as a matter of urgency.


  • Published By:The Joint Bodies
  • Published On:23 Feb 2023

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The Tax Institute
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