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  • Non-arm’s length income

    SMSF must transact on an arm's length basis. The purchase and sale price of fund assets should always reflect the true market value for the asset, and the income from assets held by your fund should always reflect the true market rate of return.

    Any non-arm's length income is taxed at the highest marginal rate.

    Broadly, income is non-arm's length income for a complying SMSF if it is:

    • derived from a scheme in which the parties were not dealing with each other at arm's length, and
    • more than the SMSF might have been expected to derive if the parties had been dealing with each other at arm's length.

    Income derived by an SMSF as a beneficiary of a discretionary trust is also non-arm's length income, as are dividends paid to an SMSF by a private company (unless the dividend is consistent with arm's length dealing).

    In addition, income from investments that have non-commercial conditions – for example, limited recourse borrowing arrangements with zero interest loans – may also be considered non-arm's length income.

    See also:

    Last modified: 16 Jun 2015QC 23345