When calculating the amount of ordinary income and statutory income of the SMSF that is exempt from income tax, non-arm's length income and assessable contributions are excluded from the calculation.
Record these income types in the SMSF annual return under the relevant income labels but don't include them when you calculate the SMSF's ECPI.
Generally, assessable contributions are contributions paid to an SMSF either:
- on behalf of a member (such as super paid by an employer on behalf of an employee)
- by a member who has claimed a personal deduction for those contributions.
Income is non-arm's length income (NALI) if the:
- parties to a scheme are not dealing at arm's length, and either or both of the following applies
- income derived from the scheme is greater than might have been expected had the parties been dealing at arm's length in relation to the scheme, or
- from 1 July 2018, expenses (either revenue or capital in nature) associated with the scheme are less than, including nil, those which might have been expected had the parties been dealing at arm's length.
NALI also includes income such as private company dividends (including non-share dividends) and certain distributions from trusts.
Claiming a tax exemption for exempt current pension income when your small super fund pays retirement income streams.