Consequences of SMSF Acquiring Assets Below Market Value
When a self-managed superannuation fund (SMSF) acquires an asset for less than its market value through non-arm's length dealings, several consequences may arise:
1. Non-Arm's Length Expenditure:
- Capital expenditures made under non-arm's length arrangements can lead to the fund deriving Non-Arm's Length Income (NALI).
- This includes revenue generated by the asset and any statutory income (such as net capital gains) resulting from its disposal.
2. Prevention of Tax Avoidance:
- Prevents trustees from acquiring assets at below-market value to generate significant ongoing income taxed at concessional rates available for complying superannuation funds.
- Ensures that income cannot escape taxation entirely, especially when assets are held in the retirement phase, as NALI cannot be treated as exempt current pension income.
3. Acquisition Methods:
- Assets can be acquired through purchase or in-specie contributions.
- If an SMSF purchases an asset below market value or reports an in-specie contribution at less than market value, it may trigger non-arm's length scheme considerations.
Ensuring Compliance: Navigating the implications of acquiring assets below market value can be complex. SMSF trustees should ensure transactions are conducted at arm's length to avoid potential NALI consequences.
Seek Expert Advice: For guidance on compliance with SMSF regulations and navigating non-arm's length expenditure issues, contact Tax Ideas Accountants & Advisers at +61 2 83181545, or book an appointment through our live calendar.
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