The ATO says it is “reviewing” some SMSFs that have received trust distributions, with a focus on the use of tax concessions and application of the Non-Arm’s Length Income (NALI) rules.
“The income diverted into these SMSFs appears to be non-arm’s length and utilise tax concessions,” said the ATO.
“We are looking at complex arrangements between related entities in a private group that result in large capital gains or inflated income being distributed to SMSFs. This is sometimes done through a chain of trusts. Legislation is in place to prevent this from occurring. Non-arm’s length income should be taxed at the top marginal rate rather than the 15% concessional rate.”
The ATO encourages tax professionals to “check your clients super records to ensure their SMSFs are meeting their income tax and super obligations.”
“You can notify us of incorrectly reported non-arm’s length income in their SMSF annual return by making a voluntary disclosure.”
Late in 2015 the ATO said that SMSFs had until 30 June 2016 to review Limited Recourse Borrowing Arrangements for possible non-arm’s length income.
The ATO has previously said that it was sending letters about possible unreported non-arm’s length income to SMSFs.
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