Nailed on NALI does the outcome justify the cost?

Just 133 self-managed superannuation funds (SMSFs) reported non-arms -length investment (NALI) transactions worth a total of $4,821,232, according to the Treasury.

The relatively no number of reports by SMSFs has come at the same time as large APRA-regulated superannuation funds have argued that the compliance burden around the NALE and NALE regime are too high.

The large funds have also argued that cost of the regime is not warranted by the risks.

As well, Treasury has denied that its approach to the new regime has not been influenced by former Federal Labor Treasurer, Wayne Swan, or major industry fund Cbus, of which Swan is now chair.

Answering questions on notice from NSW Liberal Senator, Andrew Bragg, Treasury said the $4,821,232 collected in 2022 included non-arm’s length private company dividends, trust distributions and ‘other NALI’.

Asked by Bragg how much of a compliance burden the NALI and NALE rules represented and what they cost, Treasury said that the ATO’s compliance approach required large APRA-regulated funds to demonstrate that appropriate internal controls and processes are in place and that reasonable steps are taken to determine arm’s length expenditure amounts.

However, it went on to say that representatives from the large APRA-regulated funds had expressed to Treasury “that, in practice, the level of evidentiary requirements that would be required for a broad range of transactions, including with wholly-owned entities, would lead to substantial compliance costs”.

“Those evidentiary steps would include undertaking extensive market-testing of transactions, particularly where there is not a clear public benchmark for that expense. Stakeholders argued that this level of compliance burden is disproportionate given the minimal scope or incentive for large APRA funds to seek to gain a tax advantage through non arm’s length transactions,” it said.