Despite some of the clarity provided by the ATO regarding non-arm’s length income (NALI), there continue to be errors and confusion about the actual reporting process of NALI, according to a technical expert.
Speaking to SMSF Adviser, IOOF technical services manager Julie Steed said although TR 2006/07 and the various interpretive decisions issued by the ATO provide substantial clarity around NALI, mistakes continue to be made in the completion of the form for NALI on the annual return.
“The actual place where you complete the form on the annual return, it can be quite confusing, so it’s not uncommon for incorrect trust codes to be used on the actual return,” said Ms Steed.
She warned that sometimes this can cause errors in itself.
“While it will usually resolve itself, this is usually only after considerable to-ing and fro-ing with the tax office,” she said.
NALI is an area that SMSF practitioners and trustees are still fairly unfamiliar with, Ms Steed said, since it is still relatively uncommon and has only figured recently in the ATO’s interpretive decisions.
“The other thing that happens is people not understanding the basic rules,” she said.
“For example, just having a distribution from a trust, just by virtue of the fact that it is an unlisted trust or a trust that is not widely held [and] with all private company dividends, we have to actually look at what the circumstances were and determine whether they were arm’s length income.”
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