Date posted: 09/05/2023

Federal Budget 2023-24: Super fund non-arm’s length expense policy announced

The Government’s non-arm’s length expense policy shows some progress, but they are yet to accept the industry’s preferred solution

In brief

  • APRA funds fully excluded from non-arm’s length expenditure (NALE)
  • SMSF/SAF penalty reduced from five to two times
  • Start date moved to 1 July 2019

After a long wait, the Government has announced its policy for non-arm’s length expenses incurred by superannuation funds.

In a major concession, Australian Prudential Regulation Authority (APRA) regulated super funds will be fully exempt from this policy. In January 2023, the Government proposed to exempt the general expenses for these funds but potentially apply NALE penalty for specific expenses including capital outlays. This is a major win no doubt for APRA super funds.

A change will also apply to self-managed super funds (SMSFs) and small APRA funds – in January 2023 the Government suggested that instead of all of a fund’s income facing a penalty tax rate, any mischief, that is expenses not charged at an arm’s length rate, will be multiplied by five times and taxed at 45%.

The Government has now elected to reduce this from five times to two times. In addition, taxable contributions will be exempt from facing penalty taxes. The two times penalty will then be taxed at 45%, but if the doubling of the mischief amount includes taxable contributions, the penalty will not apply. The start date for this measure will be 1 July 2019.

While we welcome the reduction in the tax penalty, the measure appears to be complex, for example, it is unclear what the revised start date will mean.

The bottom line is that the Government has rejected the preferred solution of the majority of industry associations, which is making non-arm’s length expenses a prudential matter rather than a tax anti-avoidance matter. CA ANZ will continue to advocate for our preferred solution.

Return to Federal Budget Coverage

Equipping you with the information and commentary you need to know about the Federal Budget.

Read more