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Up to $6,000 in penalties could be charged to agents who breach non-arm’s length transaction rules related to their super.
A letter jointly submitted to federal Minister for Financial Services, Stephen Jones, by representatives from CPA Australia, Chartered Accountants ANZ, the Institute of Financial Professionals Australia, Institute of Public Accountants, National Tax and Accountants’ Association, the SMSF Association, and the Tax Institute, has denounced amendments to the superannuation scheme as failing to uphold the principles of good law design — efficiency, equity, and simplicity.
“The 2019 amendments and the (consultation paper) proposals do not satisfy the original purpose, the new purpose, and good law design,” the letter states.
Changes to the Income Tax Assessment Act 1997 extended non-arm’s length income provisions to specifically deal with non-arm’s length expenditure incurred by a superannuation fund.
According to a statement released by the above accounting bodies, these amendments could result in “hard-working Australians [taking] a hit to their super, simply by applying their professional or trade skills to their personal lives due to complex restrictions on non-arm’s length transactions.”
Under current rules, transactions are prohibited with related parties at either “mates’ rates” or no rates at all, which could result in something as “mundane as mistakenly using a laptop to complete a personal task” triggering a breach.
For example, agents who opt to sell an investment property owned within their super fund without charging commission could land themselves at risk of facing the “penalty tax rate of 45¢ or more applied to every contribution made to the super fund, including compulsory payments from employers.”
According to the accounting bodies, Australians with an annual income of $90,000 and a superannuation balance of $135,000 face potential penalty taxes of $6,000 should they “fall on the wrong side of these rules.”
“They need to be changed,” the bodies insisted.
“The current rules are an unnecessary overreach. It is not possible for a skilled worker to demonstrate to the Australian Taxation Office that even the most minor of these activities shouldn’t attract a penalty.”
“We are urgently seeking a solution so thousands of people don’t fall afoul of the rules,” the statement said.
Given that the rules “were set up to stop risky borrowing arrangements seen over 20 years ago”, mixed with the fact that “the type of borrowing the rules tried to limit has been outlawed since 2016,” the bodies are calling for change.
“People are being penalised because of rules designed to fix a problem that hasn’t existed in half a decade,” it concluded.
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