A non-arm’s length capital gain made by a segregated current pension asset on after 1 July, 2021, will be treated as non-arm’s length income (NALI) and will be taxed at the highest marginal tax rate of 45%.
This was due to an amendment to the Treasury Laws Amendment (2020 Measures No 6) Act 2020 to correct an anomaly created which had the effect that any capital gain made from a segregated current pension asset was disregarded so that a capital gain arising from such assets would not be considered as NALI.
Previously, a non-arm’s length capital gain which related to an asset supporting a retirement phase income stream did not cause NALI due to a legal loophole, in that NALI only applied to ordinary income or statutory income and a capital gain.
However, a “net capital gain” was brought in as statutory income, so that a net capital gain if it is non-arm’s length could be NALI.
In this regard, if a gain was made from a segregated current pension asset, the gain was simply disregarded. If the gain was disregarded, it could not become a “net capital gain” and therefore could not become statutory income so that it also could not become NALI.
This meant that non-arm’s length capital gains in relation to segregated current pension assets were no longer disregarded and are therefore treated as NALI.
If a trustee entered into a contract to sell the asset before 1 July, 2021, any capital gain arising would be disregarded and would not be NALI, but if the trustees entered into a contract to sell the asset on or after 1 July, 2021, the capital gain would not be disregarded and would be treated as NALI.