Retirement & wealth Superannuation

Treasury Laws Amendment (Measures for Consultation) Bill 2023: Non-arm’s length expense rules for superannuation funds

Published Date: 12 Jul 2023


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We appreciate the opportunity to provide feedback on the exposure draft legislation (the exposure draft) released on 19 June 2023 regarding the non-arm’s length expenses (NALE) rules for superannuation funds.

Chartered Accountants Australia and New Zealand, CPA Australia, Institute of Public Accountants, SMSF Association, and The Tax Institute do not endorse the measures contained in the exposure draft.

Poorly designed laws can result in unfair outcomes. In addition to creating a ‘two-tiered’ superannuation sector, the proposed policy attempts to modify, rather than remove, measures which are in place to address concerns that are no longer relevant. Further, we note that the exposure draft does not address the complex issues created by the interaction of the non-arm’s length income (NALI) and NALE framework in place for superannuation funds and specific expenses. Attachment 1 to this submission outlines a number of issues requiring clarification.

In Attachment 2, we propose a more effective long-term solution.

The current provisions regarding NALI/E in section 295-550 of the Income Tax Assessment Act 1997 (ITAA97) were modified in 2019, taking effect from 1 July 2018. The amendments extended the NALI provisions to specifically address NALE incurred by a superannuation fund.

Originally, the NALI policy was aimed at imposing income tax penalties on superannuation funds involved in non-arm’s length transactions. Its intention was not to bypass the contribution caps, as suggested in the Treasury Consultation Paper (the Consultation Paper) released in January this year. Nor was its intention to allow superannuation fund members to breach their transfer balance cap.

Efficiency, equity, and simplicity are the key principles for designing effective tax laws. However, a trade-off between these principles often occurs when developing tax policies. For instance, addressing an integrity issue may require complex rules, and a decision must be made on whether the benefits of including an integrity rule outweigh the costs of complexity arising from administering that rule. Equity should not be compromised when implementing integrity measures.

We consider that the 2019 amendments that introduced the NALE provisions and the proposed amendments in the exposure draft fail to meet the original purpose, the new purpose and the principles of good law design. Further, arrangements that undermine the integrity of the system (or any perceived mischief) have not been sufficiently articulated, nor has it been quantified in publicly available data.

Since the 2019 amendments, the current NALI/E provisions have caused significant concerns within the superannuation sector, as acknowledged in the Assistant Treasurer’s media release issued on 24 January 2023. These concerns require urgent attention and resolution.

Our responses to the measures proposed in the exposure draft are set out in the following paragraphs. We continue to recommend a solution that adheres to the principles of good law design while also ensuring sufficient safeguards exist and appropriate penalties can be imposed.


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The Tax Institute
(ABN 45 008 392 372 (PRV14016))


The Tax Institute is a Recognised Tax Agent Association (RTAA) under the Tax Agent Services Regulations 2009. 

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