Non-arm’s length income
Ordinary or statutory income is non-arm’s length income of a MIT if:
- it is derived from a non-arm’s length scheme
- the amount is more than the MIT might have been expected to receive if the parties had dealt with each other at arm’s length.
An amount of non-arm's length income is the whole amount, not just the component in excess of the amount that would have been derived if the parties were dealing at arm's length. However, the trustee will only be liable to tax on the amount by which the non-arm's length income exceeds the amount that would have been expected if the parties had dealt with each other at arm’s length.
Certain amounts are specifically excluded from being non-arm’s length income:
- a distribution to a MIT from a corporate tax entity
- a distribution to a MIT from a trust that is not a party to the non-arm’s length scheme
- a return to a MIT an entity pays or provides on a debt interest if the rate of the return does not exceed the benchmark rate of return or a rate of return equal to the shortfall interest charge
- some distributions from another trust that is a party to a non-arm’s length scheme, where the income distributed is not non-arm’s length income.