Non-Arms Length Income - NALI (6)

Background to GYBW’s case continues

• Following an audit, in April 2017, the ATO issued notices of amended assessments following adjustments made to Mr D’s SMSF’s taxable income for the 2013 to 2015 income years. The amended assessments included the dividends and franking credits received in the SMSF’s taxable income as NALI. Accordingly, the dividends and franking credits were taxable at the highest marginal rate (less the benefit of the franking credit offset), rather than as exempt current pension income.
  Further, penalty assessments were issued applying a base penalty rate of 50% on the basis that the shortfall in tax payable resulted from recklessness, either on the part of the SMSF or its tax agents.
• The SMSF objected to the amended assessments and shortfall penalties. The SMSF contended the dividends were not NALI on the following grounds:
• The rate of the dividend paid on the B Holding shares held by the fund was comparable to the amount of the dividend paid on the other shares in B Holdings.
• The market value of the B Holdings shares at the time of their acquisition was no more than the nominal subscription price paid by the fund trustee.
  The SMSF was unsuccessful in its objection to the amended assessments and shortfall penalties, and sought a review of the Commissioner’s decisions at the Tribunal.