Topics on non-arm’s length income – NALI (2)




Heavy price paid for dividends treated as non-arm’s length income continues

Note that recent amendments made to the income tax legislation now mean SMSF income may be subject to the NALI provisions where non-arm’s length expenditure is incurred on deriving fund income. These new rules are discussed further from page 183.


Where an SMSF receives a dividend from a private company (or ordinary income or statutory income that is reasonably attributable to such a dividend), the amount is NALI under S.295-550(2), unless the amount is consistent with an arm’s length dealing. Section 295-550(3) sets out some factors that must be considered when assessing if a dividend is consistent with an ‘arm’s length dealing’, including:

  • the value of the SMSF’s shares in the company;
  • the cost of the shares in the company (i.e., did the SMSF pay market value for the shares?);
  • the rate of the dividend;
  • whether the company has paid a dividend on other shares in the company (e.g., different share classes) and, if so, the rate of that dividend; and
  • any other relevant matters.


The AAT recently considered the application of the NALI provisions to a private company dividend received by an SMSF in the case of GYBW v FCT [2019] AATA 4262 (‘GYBW’s case’).


All legislative references in this section of the notes are to the ITAA 1997, unless otherwise stated.


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Tags: NALI

Written by Panbo Ye

I help people discover POWERFUL unknowns in Tax Ideas | Wealth Strategies | Retirement Planning | Finance Solutions!

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