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NALE amendments are a sensible revision for large funds

Media Release | 26 June 2024

The Association of Superannuation Funds of Australia (ASFA) welcomes amendments, passed by Parliament yesterday, to the way the non arm’s length expense (NALE) rules apply to superannuation funds.

Welcoming the passage of the amendments, ASFA CEO Mary Delahunty said the amendments are a sensible revision.

“This change properly reflects the practices of superannuation funds when services are provided at a less than market rate. In effect the revision re-balances an integrity measure to reflect the associated risks.

“The amendments remove a potential risk to the retirement savings of millions of Australians; and follow ASFA’s advocacy based on extensive consultation with industry over several years.

“The revised rules acknowledge that large funds are unlikely to gain a tax advantage by engaging in schemes with related parties to incur expenses at less than arm’s length, for example, a trustee or wholly-owned investment entity providing services to the fund,” Ms Delahunty concluded.

The NALE rules were introduced in 2019, on top of an older integrity measure designed to prevent income being diverted into superannuation funds to benefit from lower rates of tax compared to other entities – particularly the marginal rates applying to individual taxpayers.

Simplistically, the NALE rules can apply where the amount paid by a fund for services provided by another entity is lower than the market rate.

In the case of ‘general’ expenses like trustee fees, application of the NALE rules could have disproportionately severe outcomes – it could mean all of the fund’s taxable income would be subject to tax at the highest marginal tax rate, currently 45%. This would severely and directly impact the returns that flow through to members of the fund.

Following the passage yesterday of the Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Bill) 2023, large superannuation funds (excluding self-managed funds and small APRA-regulated funds) will be fully exempted from the NALE rules.

 

For further information, please contact ASFA Media team: 0451 949 300

About ASFA

ASFA, the voice of super, is the peak policy, research and advocacy body for Australia’s superannuation industry. It is a not-for-profit, sector-neutral, and non-party political, national organisation. ASFA’s mission is to continuously improve the superannuation system, so all Australians can enjoy a comfortable and dignified retirement.

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