The ATO updated some SMSF instructions regarding the annual tax return, including the following:
Section A: SMSF auditor Part A
This can now be answered No if the audit was qualified only in relation to insufficient audit evidence under Auditing Standard ASA 510 Initial Audit Engagements – Opening Balance.
No long includes Part A qualifications. This question relates only to rectifying to Part B of the audit report.
J7 Property count
A new label has been added to Section H - J7 Property Count: Assets and liabilities at 15b. This is related to SMSFs that hold investments in real property that was held in trust as security under a limited recourse borrowing arrangement.
Label G1 Death benefit increase at Section C, Deductions and non-deductible expenses has now been removed because from 1 July 2019 this is no longer available.
NALI (non-arm's length income) changes
Although the changes came into effect from 1 July 2018, the ATO has used this opportunity to remind people about the changes. (One may read into it that they may put their attention to compliance with those changes.)
From 1 July 2018, NALI was expanded to also include income derived by an SMSF from a scheme in which the parties were not dealing with each other at arm’s length.
This includes where the fund incurred expenses (including nil expenses) in deriving the income that are less than those which the SMSF would otherwise have been expected to incur if the parties were dealing on an arm’s-length basis.
In the same way that NALI may be statutory or ordinary income, the expenses may be revenue or capital.
Income derived by an SMSF from 1 July 2018 in the capacity of beneficiary of a trust through holding a fixed entitlement to the income of the trust, will deemed to be NALI where both:
• The SMSF acquired the entitlement under a scheme or the income was derived under a scheme in which parties weren’t dealing with each other at arm’s length.
• The SMSF incurred expenses in acquiring the entitlement or deriving the income that are less than, including nil expenses, what the SMSF would otherwise have been expected to incur if the parties were dealing on an arm’s length basis.
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Disclaimer and Warning
The information above is of a general nature only. It should not be used as a source to make financial decisions. It's also important to note that the legislation and figures related to this topic tend to change regularly and therefore the information above may not reflect the current status. We recommend that if you are looking for advice on this matter, you should contact us.