BOK logo

NALI ‘a special problem for SMSFs’

Tax benefits attract miscreants, but non-arm’s length rules should allow minor transgressions to be fixed, says CA ANZ.


Non-arm’s length rules designed to punish egregious behaviour make no allowance for benign transgressions in SMSFs that could simply be fixed, said the superannuation leader at CA ANZ, Tony Negline.

Speaking on the latest Accountants Daily podcast, Mr Negline said SMSF tax concessions are “a big shining light on the hill” and some people could not resist running up and grabbing it.

“As an example, let’s say someone owns a business where the shares have been valued at $50 a share. And they think well, what I could do is sell those for $1 a share to my fund, and then revalue them at market once they are held by the fund,” Mr Negline said.

“Now there are all sorts of other anti-avoidance measures that would apply to such a transaction. But then there’s also NALI, and to some extent this is what it’s designed to trap.”

Mr Negline said in that circumstance, the penalty would involve the ATO applying the highest marginal individual tax rate – 45 per cent – on some of the SMSF transactions.

“They may apply it to taxable contributions that have been made, they may apply it to the income that’s earned from that investment and when those shares are sold by the fund, they may apply it to the net capital gain. Depending on the circumstances, they might do variations of that,” Mr Negline said.

But he said at the other end of the scale, relatively minor transgressions without malign intent could attract similar penalties.

“So an accountant who runs their own fund, their accounting practice let’s say does the accounting work, prepares the financial statements, does the self-managed super fund annual return, manages the audit and so on,” Mr Negline said.

“If there’s no charge for that, or minimal charge, you can find that the whole income of the fund can be taxed at 45 per cent. As opposed to just saying, Okay, that’s a $2,000 or $3,000 expense that’s been missed.

“It seems disproportionate to what would be reasonable. That’s the problem with the rules as they are now drafted.”

The ATO had issued a practical compliance guide that said it would not apply any compliance resources to such general fund expenses until July 2023.

Mr Negline said professional bodies had called on Canberra to amend the law and the previous Coalition government had indicated a willingness to act. The issue was now in the in-tray of the new Labor government.

Successful amendments would still catch the share trade in the first example, he said, but adopt a more lenient approach to relatively benign situations such as the in-house accounting example.

Mr Negline said there could be a number of ways of dealing with a minor transgression.

“Maybe, if the Commissioner identifies that, or it’s found during an audit the ATO could have a range of solutions – say, well that’s a minor expense, we’re going to ignore that and we’ll move on,” Mr Negline said.

“Or they could say, well, look, we found this. This is your first offence, you’ve been a bit silly, run away and fix it up, we’ll give you a timeframe and we’d like you to fix it up in this way, or whatever it might be. We think that’s a potential solution.”

Ultimately, the government would decide but the test would be how it worked in practice.

“The ability to correct unintended mistakes is probably the way that it needs to go. Otherwise, there’s no other solution because if you can’t fix things up, then the only way is to apply tax penalties,” Mr Negline said.

“The situation we talked about – $2,000 or $3,000 of accounting fees, let’s say, that weren’t charged – to then apply 45 per cent to the whole income of the fund if you can’t fix that up, then that just seems bizarre.”

The fix might be making good the shortfall in the expense, or deeming the unpaid amount to be a contribution.

“But as long as there’s some sort of corrective mechanism that’s reasonable and not administratively burdensome and costs a fortune to implement at both the ATO level and the fund level, then you’d have to be happy about that,” Mr Negline said.




Philip King
19 July 2022

Want to know more?

Do you have a question about something you've read in this article? Need more information? Want to book an appointment? Simply let us know below and we'll get back to you ASAP.


In the preparation of this website every effort has been made to provide accurate and timely information. However, errors can occur and applicable laws and regulations may change.

The information contained in the site is general and is not intended to serve as advice. No warranty is given as to the reliability of any information.

Users are encouraged to consult with professional advisers for advice before making any decisions that affect their own interests.

Bourke O’Brien Kennedy disclaims all and any liability to any person as to the consequences of anything done or omitted to be done by any person in reliance whether wholly or partially, upon any information contained in this website.

Links on this website are to resources managed by other parties over whom Bourke O’Brien Kennedy has no control. As such, Bourke O’Brien Kennedy accepts no responsibility as to the accuracy of any statement, opinion or advice contained in any of the supplied information and readers should rely on their own enquiries before making any decisions affecting their own interests.

Privacy Policy

We will only use the information you provide to us to respond to your requests and provide you with information about Bourke O’Brien Kennedy services.

Whenever you receive information from us electronically, you will always have an opportunity to request not to receive the information again and your wishes will be respected.

If you send us a curriculum vitae (CV) to apply for a position with Bourke O’Brien Kennedy, we will only use that information to consider you for available opportunities.

We do not share personal information with third parties except as necessary to carry out our business or as required by law or other processes. We do not sell personal information. All personnel with access to personal information ensure to maintain its confidentiality.

If you have questions or comments about anything to do with our website, please do not hesitate to contact us at