ATO releases administrative approach for 2019- and 2020-income years continues
As the Bill only received Royal Assent on 2 October 2019 (i.e., during the 2020 income year), and the ATO only published its (controversial) views regarding non-arm's length expenditure of a general nature on the same day, the ATO will apply a transitional compliance approach for superannuation funds concerning the application of the NALI provisions in these circumstances for the 2019 income year and the 2020 income year. The compliance approach will not apply to later income years (i.e., to income derived on or after 1 July 2020).
Under the compliance approach, the ATO will not allocate compliance resources to determine whether the NALI provisions apply to a complying superannuation fund for the 2019- and 2020-income years where the fund incurred non-arm's length expenditure of a general nature that has a sufficient nexus to all ordinary and/or statutory income derived by the fund in those respective income years. For example, the ATO will not apply compliance resources (in the 2019- and 2020-income years) where an SMSF has incurred non-arm's length expenditure (or nil expenditure) on accounting services (such as the case in Example 4 above).
Note that, if/when PCG 2019/D6 is finalised, this transitional approach will not apply where the fund incurred non-arm's length expenditure that is directly related to the fund deriving particular ordinary or statutory income. For example, the ATO will not apply this compliance approach where an SMSF has acquired an income-generating asset for less than its market value.