“The good news is the ATO has now reverted back to its traditional distinction when we're looking at expenses as either being revenue expense or capital expense.”

A previous LCR introduced the concept of a recurrent expense, Burgess said, and the ATO used that to determine if an expense was capital in nature.

“That's now being replaced and reverted back to this traditional way that we used to determine what was revenue versus capital,” he said.

“The distinction of whether an expense is revenue or capital is important, because if it is a capital expense and it's undercharged, then all the capital gain with that asset when it's sold is tainted and taxed as NALE.”

He said the association is now focused on the “fight” around NALE to ensure some clarification and relief around this specific issue.

“It is completely unreasonable where you have a situation where the fund owns a property and some renovations are done on that property, whether it’s minor or done after 1 July 2018, whether it's done just prior to the sale of the property or not, the whole capital gain on the sale of that asset is subject to NALE now and that is very harsh, and something we're focused on trying to address,” Burgess said.

He added there was also the issue of retrospectivity in the regulation that needs to be addressed because as it stands, the whole capital gain is considered and not just the gain that accrued from 1 July 2018.

“We are hearing that this is not something Treasury is interested in looking at. That's not on their priority list, so in the absence of a legislative fix, we're asking the ATO for a pragmatic approach, a practical approach to this,” Burgess said.

“Some of the things we're looking at to mitigate the disproportionate outcomes is the Commissioner using his discretion and to allow trustees to fix the problem. We need an ability to make good.”

Another issue the SMSFA asked to be reviewed involves in-specie contributions for NALI/E regulations.

Burgess said the ruling currently states that if a fund is acquiring a property and there is an in-specie contribution it is important that the purchase contract makes it very clear there is an in-specie contribution involved.

“If you don't do that, then the fund has purchased a property at less than market value, and NALI applies,” he said.

“We can live with this, and we can work with this. It's quite a common transaction we see in SMSFs.

“What we can't live with, though, is this being made retrospective and we certainly discussed with the ATO about a practical approach here, about not applying this interpretation retrospectively, not applying it to transactions done in years gone by. We're happy to comply with it going forward, but not on a retrospective basis.”