There are two changes affecting SMSF’s which have recently occurred:
Non-Arm’s Length Income (NALI) Changes
The definition of Non-arm's length income (NALI) has been expanded to now apply to non-arm’s length expenditure and outgoings, not just income.
The definition now states that the ordinary or statutory income of a super fund will be NALI and taxed at the top marginal rate where there is a scheme in which the parties are not dealing with each other at arm's length and the fund incurs:
• a loss, outgoing or expenditure (including a nil amount), in gaining or producing the income, that is less than what would be expected had the parties dealt with each other at arm's length in relation to the scheme; or
• a loss, outgoing or expenditure (including a nil amount) to acquire a fixed entitlement to the income of a trust or in gaining or producing the income from a fixed entitlement that is less than would be expected had the parties dealt with each other at arm's length in relation to the scheme.
This is a significant change to encompass expenses and outgoings, not just income with related parties! It applies from the 2018-19 income year onwards.
Total Super Balance Changes
The calculation of an individual’s total superannuation balance will include, in certain circumstances the outstanding Limited recourse borrowing arrangement (LRBA) amount attributable to each member’s interest where the SMSF has an LRBA that was made under a contact entered into on or after 1 July 2018.
This occurs if:
• the LRBA is with an associate of the SMSF
• a member of the fund met a condition of release with a nil cashing restriction
This change doesn’t include the refinancing of an LRBA that was made before 1 July 2018 where both the following apply:
• the new borrowing is secured by the same asset or assets as the old borrowing
• the refinanced amount is the same or less than the existing LRBA.
For more information please contact Infinite Accounting Solutions on 02 9899 4730 or via the contact page at www.ias-ca.com.au