Background to the non-arm’s length income provisions continues
Prior to the amendments made by the Bill, ‘non-arm’s length income’ of a complying superannuation fund (including an SMSF) was defined in S.295-550 to include any of the following amounts:
- An amount of ordinary or statutory income derived under a scheme where:
- the parties were not dealing with each other at arm's length in relation to the scheme; and
- the amount of income is more than what might have been expected to have been derived if those parties had been dealing with each other at arm's length in relation to the scheme.
- An amount of ordinary income or statutory income that is a dividend paid to the entity by a private company (or ordinary income or statutory income that is reasonably attributable to such a dividend) unless the amount is consistent with an arm’s length dealing. Refer to page 194 for a further discussion on how private company dividends are treated for NALI purposes.
- Income derived by the fund as a beneficiary of a trust, other than because of holding a fixed entitlement to the income (e.g., a distribution from a discretionary trust).
- Income derived as a beneficiary of a trust through holding a fixed entitlement to the income of the trust where:
- the fund acquired the entitlement under a scheme, or the income was derived under a scheme, the parties to which were not dealing with each other at arm's length; and
- the amount of income is more than what might have been expected to have been derived if those parties had been dealing with each other at arm's length.
The above descriptions of income that have traditionally been considered NALI all focus on the income being derived by the superannuation fund. Importantly, these rules have been maintained following the amendments made to S.295-550 by the Bill. However, the amendments remove any ambiguity in the application of the NALI provisions by clarifying their application where a complying superannuation fund incurs a loss, outgoing or expenditure (or does not incur a loss, outgoing or expenditure) in certain circumstances.