The superannuation rules apply tax at the highest marginal personal tax rate on any income of a SMSF which is not earned on an “arms-length” basis.
NALI Tax Rate
The Non Arms Length Income (NALI) tax rate is currently 45%.
Income which is more than might be expected from transactions where the parties are related are caught by these rules.
SMSFs are required to transact on an arms-length basis.
- the transfer values of assets must be at market value
- certain ‘non-commercial’ arrangements, such as LRBAs with zero interest loans are considered to be non-arms length
- discretionary trust income is considered to be non-arms-length
- private company dividends may also be non-arms length unless consistent with an arm’s length dealing
The government has also legislated to extend the NALI rules to situations where the expenses of an SMSF are less than would be expected from an arm’s length dealing.
The new rules have application from 1 July 2018. See Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2018
Application of the rules – LCR 2019/D3
Nine examples of the application of the NALI rules are provided in a draft ruling Law Companion Ruling LCR 2019/D3 Non-arm’s length income – expenditure incurred under a non-arm’s length arrangement.
The draft ruling is under active consideration by the Tax Office with expected finalisation by July 2021. See Advice Under Development
NALI Further Info and Commentary
- Non-arm’s length income and self-managed superannuation funds – AAT reminder: it’s wider than the actions of the SMSF!
- SMSFRB 2020/1 Self-managed superannuation funds and property development
- Practical Compliance Guideline PCG 2020/5 (previously issued as a draft PCG 2019/D6) – a transitional compliance approach for years 2018-19, 2019-20, 2020-21 and 2021-22 (the ATO will not allocate compliance resources to determine whether the NALI provisions apply)
- Changes to non-arm’s length income (NALI) rules for SMSFs
- Non-arm’s length income – ATO
- Taxation Ruling TR 2006/7 (‘special income’)
This page was last modified 2021-06-11