The regulator said PCG2020/5 should be read in conjunction with draft Law Companion Ruling LCR 2019/D3 Non-arm’s length income – expenditure incurred under a non-arm’s length arrangement.

In the guide, the ATO defined a complying superannuation entity as a complying superannuation fund, a complying approved deposit fund or a pooled superannuation trust.

“The ATO will not allocate compliance resources to determine whether the NALI provisions apply to a complying superannuation fund for the 2018–19, 2019–20 and 2020–21 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, non-arm’s length expenditure on accounting services),” the regulator said.

“This transitional compliance approach does not apply where the fund incurred non-arm’s length expenditure that directly related to the fund deriving particular ordinary or statutory income.”