Did the SMSF receive non-arm's length income?
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No |
Leave U1, U2, U3 and U blank. Go to W. |
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Yes |
Read on. |
Was the SMSF a complying SMSF for 2018–19?
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No |
Leave U1, U2, U3 and U blank. Write the non-complying SMSF's non-arm's length income where appropriate at A to T above. Then go to W. |
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Yes |
Read on. |
Write the SMSF's non-arm's length income at:
- U1 Net non-arm's length private company dividends
- U2 Net non-arm's length trust distributions
- U3 Net other non-arm's length income.
Consider whether any income that the SMSF earned in 2018–19 was earned through a transaction that was not at arm's length.
Note: These instructions have been updated to reflect retrospective law changes for non-arm’s length expenses for superannuation entities. The changes apply from 1 July 2018 and are contained in Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Act 2024.
Don't include at labels U1, U2, U3, U or any other label in Section B – non-arm’s length income as a result of non-arm’s length expenses that have a sufficient nexus to all ordinary or statutory income of the fund (general expense) rather than a particular asset or assets of the fund. These general expenses result in non-arm’s length income calculated using the ‘Twice the difference approach' and will be taken into account when calculating the ‘Tax on taxable income’ at label T1 in Section D.
For more information about identifying the SMSF's non-arm's-length income, see Non-arm's length income.
Non-arm's length income is not exempt from income tax under the exempt current pension income rules.
Net non-arm's length income
Each amount of non-arm's length income is reduced by any deductions attributable, either in whole or in part, to that income.
Deductions against that income are those that relate exclusively to the non-arm's length income and as much of other deductions that appropriately relate to that income. The amounts deducted against the SMSF’s non-arm’s length income at labels U1, U2 or U3 should not be included in Section C, except, where non-arm’s length general expenses that are actually incurred, these are included as a deduction at the appropriate label in Section C – Deductions and non-deductible expenses, to the extent that they are deductible. Non-arm's length losses
If the net amount of non-arm's length income is a loss, do not show the loss at U. The loss may be offset against future non-arm's length income. Keep a record of the loss amount with the SMSF's tax records.
U1 Net non-arm's length private company dividends
Was the SMSF paid non-arm's length private company dividends?
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No |
Leave U1 blank. Go to U2. |
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Yes |
Read on. |
Write at U1 the total of:
- non-arm's length private company dividends which were paid to the complying SMSF in 2018–19, and
- franking credits attached to the non-arm's length private company dividends if the SMSF is entitled to a corresponding franking credits tax offset (see Entitlement to a franking credits tax offset)
less
- deductible expenses related to earning the non-arm's length private company dividends.
If you are unsure whether some or all of the SMSF's income is non-arm's length, see Non-arm's length income.
Include non-share dividends that are non-arm's length income at U1.
Do not include private company dividends that are arm's length income (include these at A to T as appropriate). In addition to including a franking credit at U1, you must also include it at either:
- E1 Complying fund’s franking credits tax offset in section D if the SMSF is a complying fund
- C2 Rebates and tax offsets in section D if the SMSF is a non-complying fund.
Non-arm's length private company dividends are not exempt from income tax under the exempt current pension income rules.
U2 Net non-arm's length trust distributions
Did the SMSF receive a share of net income from a trust that is non-arm's length?
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No |
Leave U2 blank. Go to U3. |
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Yes |
Read on. |
Write at U2 the total of:
- any non-arm's length income which the complying SMSF received in 2018–19 as a share of net income from a trust
less
- deductible expenses related to earning the amount at U2.
If you are unsure whether a share of net income from a trust is non-arm's length, see Non-arm's length income.
Include the following types of income at U2 if the income is non-arm's length income and received as a share of net income from a trust:
- net capital gains
- dividends (or non-share dividends), along with any attached franking credits if the SMSF is entitled to a corresponding tax offset (see Entitlement to a franking credits tax offset).
In addition to including a franking credit at U2, you must also include it at either:
- E1 Complying fund’s franking credits tax offset in section D if the SMSF is a complying fund
- C2 Rebates and tax offsets in section D if the SMSF is a non-complying fund.
Do not include a share of net income from a trust that is arm's length income (include this at M Gross trust distributions).
A share of net income from a trust that is non-arm's length is not exempt from income tax under the exempt current pension income rules.
U3 Net other non-arm's length income
Does the SMSF have any other non-arm's length income?
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No |
Leave U3 blank. Go to U. |
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Yes |
Read on. |
Write at label U3 any income which the complying SMSF has for 2018–19 and that was not included at label U1 or U2. If you are unsure whether the income is non-arm's length, see Non-arm's length income.
Don't include at label U3:
- non-arm's length income that is more appropriately included at label U1 Net non-arm's length private company dividends or label U2 Net non-arm's length trust distributions
- non-arm’s length income as a result of a general expense calculated using the 'Twice the difference approach' (being the multiple of 2 of the difference between the amount that might have been expected to be incurred if the parties had been dealing at arm’s length and the amount actually incurred) – this income will be taken into account when calculating the ‘Tax on taxable income’ at label label T1 in Section D
- income that is arm's-length income (write it at labels A to T as appropriate).
Non-arm's length income is not exempt from income tax under the exempt current pension income rules.
U Net non-arm's length income
Add the amounts you wrote at labels U1, U2 and U3.
Note: Due to retrospective law changes for non-arm’s length general expenses, label U may not align with the descriptor on the return form being ‘subject to 45% tax rate’. Non-arm's length income is not exempt from income tax under the exempt current pension income rules.
Continue to: W Gross income