Identifying Non-Arm's Length Expenditure: Key Considerations
Understanding the Scheme:
Determining whether the new non-arm's length expenditure rules apply involves identifying a "scheme." According to Section 995-1(1), a scheme encompasses any arrangement, plan, proposal, action, or conduct, whether unilateral or otherwise. This broad definition covers various transactions or arrangements entered into by an SMSF, such as engaging a service provider, acquiring assets, or entering contracts, including Limited Recourse Borrowing Arrangements (LRBAs).
Involvement of Multiple Parties:
The NALI provisions typically involve dealings between at least two parties or a party acting in multiple capacities, such as the trustee of an SMSF.
Non-Arm's Length Dealing:
For the rules to apply, the parties involved must not be dealing with each other at arm's length. This concept isn't limited to dealings with associates or related parties. Even transactions involving individuals who aren't directly related to the SMSF, like friends or colleagues of fund members, may fall under the NALI provisions if they're not conducted at arm's length.
Seek Expert Advice:
Identifying when the non-arms length expenditure rules apply can be complex. For guidance on navigating these rules and ensuring compliance, reach out to Tax Ideas Accountants & Advisers at +61 2 83181545, or book an appointment through our live calendar.
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