Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-30 - SUPERANNUATION  

Division 295 - Taxation of superannuation entities  

Subdivision 295-H - Components of taxable income  

SECTION 295-550   Meaning of non-arm ' s length income  

295-550(1)    

An amount of *ordinary income or *statutory income is non-arm ' s length income of a *complying superannuation entity if, as a result of a *scheme the parties to which were not dealing with each other at *arm ' s length in relation to the scheme, one or more of the following applies:

(a)    the amount of the income is more than the amount that the entity might have been expected to derive if those parties had been dealing with each other at arm ' s length in relation to the scheme;

(b)    

if the entity is of a kind referred to in paragraph (8)(a) (about certain small entities):

(i) in gaining or producing the income, the entity incurs a loss, outgoing or expenditure of an amount that is less than the amount of a loss, outgoing or expenditure that the entity might have been expected to incur if those parties had been dealing with each other at arm ' s length in relation to the scheme; and

(ii) subsection (8) does not apply to the loss, outgoing or expenditure;

(c)    

if the entity is of a kind referred to in paragraph (8)(a) (about certain small entities):

(i) in gaining or producing the income, the entity does not incur a loss, outgoing or expenditure that the entity might have been expected to incur if those parties had been dealing with each other at arm ' s length in relation to the scheme; and

(ii) subsection (9) does not apply to the loss, outgoing or expenditure that the entity might have been expected to incur.

This subsection does not apply to an amount to which subsection (2) applies or an amount *derived by the entity in the capacity of beneficiary of a trust.

295-550(2)    
An amount of *ordinary income or *statutory income is also non-arm ' s length income of the entity if it is:

(a)    a *dividend paid to the entity by a *private company; or

(b)    ordinary income or statutory income that is reasonably attributable to such a dividend;

unless the amount is consistent with an *arm ' s length dealing.

295-550(3)    
In deciding whether an amount is consistent with an *arm ' s length dealing under subsection (2) , have regard to:

(a)    the value of *shares in the company that are assets of the entity; and

(b)    the cost to the entity of the shares on which the *dividend was paid; and

(c)    the rate of that dividend; and

(d)    whether the company has paid a dividend on other shares in the company and, if so, the rate of that dividend; and

(e)    whether the company has issued any shares to the entity in satisfaction of a dividend paid by the company (or part of it) and, if so, the circumstances of the issue; and

(f)    any other relevant matters.

295-550(4)    
Income *derived by the entity as a beneficiary of a trust, other than because of holding a fixed entitlement to the income, is non-arm ' s length income of the entity.

295-550(5)    

Other income *derived by the entity as a beneficiary of a trust through holding a fixed entitlement to the income of the trust is non-arm ' s length income of the entity if, as a result of a *scheme the parties to which were not dealing with each other at *arm ' s length in relation to the scheme, one or more of the following applies:

(a)    the amount of the income is more than the amount that the entity might have been expected to derive if those parties had been dealing with each other at arm ' s length in relation to the scheme;

(b)    

if the entity is of a kind referred to in paragraph (8)(a) (about certain small entities) - in acquiring the entitlement or in gaining or producing the income, the entity incurs a loss, outgoing or expenditure of an amount that is less than the amount of a loss, outgoing or expenditure that the entity might have been expected to incur if those parties had been dealing with each other at arm ' s length in relation to the scheme;

(c)    

if the entity is of a kind referred to in paragraph (8)(a) (about certain small entities) - in acquiring the entitlement or in gaining or producing the income, the entity does not incur a loss, outgoing or expenditure that the entity might have been expected to incur if those parties had been dealing with each other at arm ' s length in relation to the scheme.

295-550(6)    
This section:

(a)    applies to a *non-share equity interest in the same way as it applies to a *share; and

(b)    applies to an *equity holder in a company in the same way as it applies to a shareholder in the company; and

(c)    applies to a *non-share dividend in the same way as it applies to a *dividend.

295-550(7)    

Paragraphs (1)(b) and (c) and (5)(b) and (c) apply to a loss, outgoing or expenditure whether or not it is of capital or of a capital nature.

Certain small entities - general expenses

295-550(8)    

If:

(a)    a *complying superannuation entity is:

(i) a *regulated superannuation fund with no more than 6 members; or

(ii) a *self managed superannuation fund; and

(b)    as a result of a *scheme the parties to which were not dealing with each other at *arm ' s length in relation to the scheme:

(i) in gaining or producing the *ordinary income and *statutory income of the entity (but not in gaining or producing income in relation to any particular asset or assets of the entity), the entity incurs a loss, outgoing or expenditure of an amount; and

(ii) the amount is less than the amount of a loss, outgoing or expenditure that the entity might have been expected to incur if those parties had been dealing with each other at arm ' s length in relation to the scheme;

an amount of the entity ' s ordinary income and statutory income equal to twice the difference between the amount that the entity did incur and the amount that the entity might have been expected to incur is non-arm ' s length income of the entity.

295-550(9)    

If:

(a)    a *complying superannuation entity is of a kind referred to in paragraph (8)(a) (about certain small entities); and

(b)    as a result of a *scheme the parties to which were not dealing with each other at *arm ' s length in relation to the scheme, in gaining or producing the *ordinary income and *statutory income of the entity (but not in gaining or producing income in relation to any particular asset or assets of the entity), the entity does not incur a loss, outgoing or expenditure that the entity might have been expected to incur if those parties had been dealing with each other at arm ' s length in relation to the scheme;

an amount of the entity ' s ordinary income and statutory income equal to twice the amount that the entity might have been expected to incur is non-arm ' s length income of the entity.