Section B is where an SMSF records all assessable income earned during the 2016–17 income year.
Before completing this section you should read the following:
- Do you need to complete Section B?
- Answering questions in Section B
- Goods and services tax (GST)
- Foreign currency translation rules
- Taxation of financial arrangements (TOFA)
- Family trust distributions tax (FTDT) and Trustee beneficiary non-disclosure tax (TBNT)
- Non-arm's-length income
Do you need to complete Section B?
Most SMSFs need to complete Section B. However, you do not complete Section B if all the SMSF's income in 2016–17 is exempt from income tax under the exempt current pension income rules.
Do not assume that the SMSF has no assessable income (and that you do not need to complete Section B) just because all its members received an income stream (pension) in 2016–17. Situations where an SMSF has assessable income even though it pays an income stream to all its members include:
- the SMSF is non-complying
- the SMSF has non-arm's-length income
- the SMSF received assessable contributions
- the SMSF paid less than the minimum annual pension payment amount to one or more members (see Income stream (pension))
- the SMSF is not paying an income stream (pension) to all members for the entire income year
- the value of the SMSF's assets exceeds the total of the account balances supporting the income streams (for example, an SMSF may keep assets in a reserve account, separate from the members’ accounts, to be prepared for certain contingencies).
Whether or not you need to complete Section B, remember to complete Section C: Deductions and non-deductible expenses where you include expenses that relate to the SMSF's tax-exempt income. Expenses, that are normally deductible, are generally non-deductible when they relate to tax-exempt income.
Answering questions in Section B
Complete Section B for all assessable income the SMSF earned during 2016–17, whether the SMSF received it or not.
Work through each question in this section and:
- write the relevant amount if the question applies to your SMSF
- write 0 (zero) at the mandatory question R3 No-TFN-quoted contributions if it does not apply to your SMSF
- leave the answer box blank for other questions that do not apply to your SMSF.
Answer the questions in their sequence.
- Some questions rely on information you have already entered in previous questions.
- You will need to go through the questions in the left-hand column (D1, R1 to R6, U1 to U3) before you can complete three questions in the right-hand column (D, R, U).
Do not show cents for any amount you write in this section.
Goods and services tax (GST)
If the SMSF is registered, or required to be registered, for GST purposes, do not include GST amounts in the assessable income you show on the annual return. In the deductions you show, do not include any amount that relates to input tax credit entitlements.
If the SMSF is not registered and not required to be registered for GST purposes, or if it is not entitled to an input tax credit, the deductions you show are the GST-inclusive amounts that the SMSF incurred. Special rules apply to GST adjustments. To register for GST, apply at the Australian Business RegisterExternal Link.
Foreign currency translation rules
If the SMSF has entered into transactions in a foreign currency or derived income in a foreign currency, you need to translate those amounts to Australian currency to calculate the assessable or deductible amount.
For more information, see:
- Foreign exchange (forex): the general translation rule
- Foreign exchange (forex): general information on average rates.
Taxation of financial arrangements (TOFA)
If the TOFA rules apply to the SMSF, include assessable income from financial arrangements subject to the TOFA rules at the appropriate question. Complete Section I: Taxation of financial arrangements if you include an amount determined under the TOFA rules.
For more information, see Section I: Taxation of financial arrangements.
Family trust distribution tax (FTDT) and Trustee beneficiary non-disclosure tax (TBNT)
Do not include at any question in Section B any part of a distribution:
- received from a trust or partnership on which family trust distribution tax (FTDT) has been paid (do not show this anywhere in the annual return) or
- received (directly or indirectly) from a closely held trust on which trustee beneficiary non-disclosure tax (TBNT) has been paid (do not show this anywhere in the annual return).
Losses and outgoings that the SMSF incurred in deriving an amount that is excluded from assessable income because FTDT or TBNT has been paid are not deductible (report them as non-deductible expenses).
The SMSF cannot claim a franking credits tax offset for any franking credits attributable to the whole or a part of a dividend that is excluded from assessable income because FTDT or TBNT has been paid.
Non-arm's-length income
The factors that you need to consider when deciding whether a transaction is at arm's length or non-arm's-length depend on whether the income is:
These factors are discussed in the following sections.
Complying SMSFs do not include non-arm's-length income at A to T in Section B. Instead they include it at:
- U1 Net non-arm's-length private company dividends
- U2 Net non-arm's-length trust distributions or
- U3 Net other non-arm's-length income.
For example, non-arm's-length unfranked dividends are included at U1 Net non-arm's-length private company dividends instead of at J Unfranked dividend amount.
Non-complying SMSFs do not need to separate their non-arm's-length income from their arm's-length income. They include both arm's-length and non-arm's-length income at A to T.
Private company dividends that are non-arm's-length income
A dividend paid by a private company, or ordinary income or statutory income reasonably attributable to such a dividend, is non-arm's-length income unless the amount is consistent with an arm’s length dealing.
To decide whether the amount is consistent with an arm’s length dealing, consider any connection between the private company and the SMSF, as well as any other relevant circumstances such as:
- the value of the shares held by the SMSF in the company
- the cost to the SMSF of the shares on which the dividends were paid
- the dividend rate on those shares
- whether dividends have been paid on other shares in the company (and at what rate)
- whether the company has issued shares in lieu of dividends to the SMSF and the circumstances of the issue.
If the SMSF received non-arm's-length private company dividends, include it at:
- U1 Net non-arm's-length private company dividends if the SMSF is complying
- the appropriate question A to T (as if it were arm's length income) if the SMSF is non-complying.
For more information about determining whether income is non-arm's-length income, see:
- Non-arm's-length income
- Taxation Ruling TR 2006/7 – Income tax: special income derived by a complying superannuation fund, a complying approved deposit fund or a pooled superannuation trust in relation to the year of income
- Section 295-550 of the Income Tax Assessment Act 1997.
Trust distributions that are non-arm's-length income
A distribution from a trust is non-arm's-length income of a complying SMSF if:
- the SMSF does not have a fixed entitlement to income from the trust (generally discretionary trusts) (see subsection 295-550(4) of the ITAA 1997), or
- all of the following apply:
- the SMSF has a fixed entitlement to income from the trust
- the SMSF acquired the entitlement, or the share of net income was derived, under a scheme where the parties were not dealing with each other at arm’s length
- the SMSF’s share of the net income is more than it would have been had the parties been dealing with each other at arm’s length (see subsection 295-550(5) of the ITAA 1997).
If the SMSF received non-arm's-length trust distributions, include it at:
- U2 Net non-arm's-length trust distributions if the SMSF is complying
- M Gross trust distributions (as if it were arm's length income) if the SMSF is non-complying.
For more information, see:
- Non-arm's-length income
- Taxation Ruling TR 2006/7 – Income tax: special income derived by a complying superannuation fund, a complying approved deposit fund or a pooled superannuation trust in relation to the year of income.
Legislation
Section 295-550 of the Income Tax Assessment Act 1997.
Identifying other types of income that are non-arm's-length
Other types of income (that is, income that is not a private company dividend or distribution from a trust) are non-arm's-length income if:
- the parties to a scheme are not dealing with each other at arm’s length, and
- the income derived from the scheme is greater than might have been expected had the parties been dealing with each other at arm’s length.
Whether income is non-arm's-length income depends on all of the circumstances of the relationship including the return on the investment and the commercial risks undertaken by the SMSF. Other non-arm's-length income may include, for example:
- interest on loans
- rent from property
- profit on the sale of assets
- net capital gains.
If the SMSF received non-arm's-length income that is not a private company dividend or a trust distribution, include it at:
- U3 Net other non-arm's-length income if the SMSF is complying
- the appropriate question A to T (as if it were arm's length income) if the SMSF is non-complying.
For more information, see:
- Non-arm's-length income
- Taxation Ruling TR 2006/7 – Income tax: special income derived by a complying superannuation fund, a complying approved deposit fund or a pooled superannuation trust in relation to the year of income.
Legislation
Section 295-550 of the Income Tax Assessment Act 1997