SMSFs – Non Arms Length Income (NALI)

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.

Key points:

  • 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

This page was last modified 2021-06-11