The Tribunal’s decision in GYBW’s case continues
Overall, the Tribunal concluded that, on the facts in this case, the source of the dividends paid by B Holdings in the years in question could not be divorced from a non-arm’s length transaction (being B Holdings’ acquisition of the shares in BE Pty Ltd for $200), where the purpose and effect of the arrangement was to divert income from Mr K (the previous owner of the BE Pty Ltd shares) to Mr D’s SMSF, as part of an arrangement to confer a benefit on Mr D.
The Tribunal further concluded that the intent of the NALI provisions were engaged because had the shares in BE Pty Ltd been sold to B Holdings at their market value, the amount in fact paid by B Holdings would not have resulted in it acquiring all of the shares in BE Pty Ltd. In turn, the dividends on the BE Pty Ltd shares would have largely continued to accrue to the TK Trust (i.e., Mr K’s trust, being a non-concessional taxpayer). Similarly, had B Holdings acquired the shares in BE Pty Ltd prior to the SMSF acquiring the shares in B Holdings, the fund’s acquisition of the shares in BE Pty Ltd for nominal value would not have been an acquisition for market value.
In the Tribunal’s view, by reason of a non-arm’s length transaction on the acquisition of BE Pty Ltd shares by B Holdings, income has been diverted from T K Investments Pty Ltd (a non-concessional taxpayer) to the SMSF (a concessional taxpayer) through the SMSF’s shareholding in B Holdings. Accordingly, the Tribunal found the dividends paid by B Holdings to the SMSF to be NALI.
Implications of GYBW’s case
Given that private company dividends (or income that is reasonably attributable to such dividends) are treated as NALI unless the amount is consistent with an arm’s length dealing, the onus is on the SMSF trustee to demonstrate that the amount is consistent with an arm’s length dealing. In GYBW’s case, the SMSF was unable to satisfy the necessary burden of proof at the Tribunal.