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Topics on self-managed superannuation fund – SMSF (7)

In: SMSF
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Identifying when a scheme will be caught by the new non-arm’s length expenditure rules continues

  • As a party to the scheme, the fund has incurred less (or nil) expenditure than would otherwise be expected if the parties were dealing with each other on an arm’s length basis in relation to the scheme. The expenditure that has been incurred by the fund (or ordinarily would be expected to be incurred) may be of a revenue or capital nature.

The Explanatory Memorandum (‘EM’) to the Bill acknowledges that it may be difficult to determine an exact price that is ‘non-arm’s length’ for these purposes, and that an ‘arm’s length’ price may be accepted to fall within a range of commercial prices. In some circumstances, a discounted price or favourable terms provided to a complying superannuation fund may be considered ‘arm’s length’, such as where a party operates on a simple cost-recovery basis for particular services but is able to justify doing so in commercial terms because of the economies of scale it achieves within its business by providing other services.

  • A specific amount of ordinary or statutory income must be able to be identified as NALI. Where there is a scheme that produced NALI by incurring non-arm’s length expenditure, there must also be a sufficient nexus between the expense(s) and the income. That is, the expenditure must have been incurred ‘in’ gaining or producing the relevant (or underlying) income. According to the EM to the Bill, this reflects the analysis that must be undertaken in determining whether an expense is deductible under S.8-1 (or can be included in the entity’s cost base if the expense is of a capital nature).

This legislative requirement ensures that the consequences of an amount of income being NALI are restricted to that amount of income and any related deductions.

 

  • Should you have any queries, please contact Tax Ideas Accountants & Advisers on +61 2 83181545
  • Alternatively, you can book an appointment in our live calendar.

 

Tags: SMSF

Written by Panbo Ye

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

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