Topics on non-arm’s length income – NALI (5)



Background to GYBW’s case continues

  • Shortly after the SMSF acquired its shares in B Holdings, BE Pty Ltd (which, at this time, was wholly owned by B Holdings) was awarded a number of contracts as follows:
  • A purchase order from the Australian Navy for over $6 million on 9 November 2011, when an entire landing system on a naval ship was totally destroyed (an event that was unexpected and unprecedented).
  • A purchase order from the Department of Defence for over $2.8 million on 9 January 2012 to service and maintain certain landing system components.
  • A purchase order from the Department of Defence for over $4.6 million on 17 April 2012 for a new helicopter landing system kit.
  • Two purchase orders for a total of over $5 million on 4 June 2012 for two large helicopter landing system overhaul jobs.
    The total of the purchase orders received between November 2011 and June 2012 was far in excess of anything the business had experienced before.
  • Between the 2013 to 2015 income years, BE Pty Ltd paid a total of $9.165 million in dividends to B Holdings. In turn, B Holdings paid dividends to its shareholders, including $1.793 million in fully franked dividends ($768,284 of franking credits attached) being paid to the SMSF during that three-year period.
    As the SMSF was solely in pension phase, the fund treated the dividends (and franking credits) as exempt income under the pension earnings exemption. As the franking credits were refundable, the SMSF effectively received cash dividends of more than $2.56 million (i.e.$1.793 million + $768,284) from B Holdings over the three-year period.


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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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