Consequences of an SMSF acquiring an asset for less than its market value
As discussed above, non-arm’s length expenditure that is capital in nature can result in a superannuation fund deriving NALI. Most notably, where a fund acquires an asset for less than its market value (through non-arm’s length dealings), the revenue generated by that asset may be NALI, as well as any statutory income (i.e., net capital gain) resulting from the disposal of that asset.
This treatment ensures that fund trustees do not have an incentive to acquire assets at less than market value for the purpose of generating potentially significant ongoing amounts of income which would otherwise be subject to the concessional rate of tax available for a complying superannuation fund. It further ensures that such income cannot escape taxation entirely where the assets are held in the retirement phase (i.e., as NALI cannot be treated as exempt current pension income).
A superannuation fund may acquire an asset by purchasing an asset or by way of an in-specie contribution. Where a superannuation fund purchases an asset at less than market value (or reports the in specie contribution at less than market value), then the acquisition may form part of a non-arm’s length scheme such that any ordinary or statutory income derived from the asset and the disposal of the asset will be treated as NALI.