Shares in Unlisted Private Companies
Shares in Unlisted Private Companies (77800 for Australian and 77900 for International) by default use account 24000 for dividends. If dividends received are arm's length in nature, setup a Linked Account 23900 for dividends to be posted to.
Overview
What is non-arm's length income?
Sect 295.550 of the Income Tax Assessment Act 1997
Meaning of non-arm's length income
Non-arm's length income is taxed at 45%.
Refer to the ATO's Website for more information.
How to record in SF360
The following Tax Return Labels relate to non-arm's length income:
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
Refer to the latest SMSF Annual Return instructions for more information on tax labels.
Account 24000/INVESTCODE - Private Dividends uses Tax Label U1. This is not editable.
If you are posting amounts of income that need to be recorded to label U2 or U3, you will need to add another income account. Refer to the Other Accounts help for instructions.
For transaction input, refer to the Transaction Input page.
Deductions
BGL have received clarification from the ATO that expenses (from arm's length transactions) must first be offset against ordinary income (from arm's length transactions) before it can be used to offset any net non-arm's length income.
Any remaining taxable income derived from the net non-arms' length transactions will be taxed at 45%.
Note
This also applies where a fund is in 100% pension phase. Non arm-length income may result in taxable income for a pension fund.
Scenario 1
Net non-arm's length income (Label U) = $1000
Admin expense (Label J1) = $300
Tax return
Taxable Income (Label A) = $700 ($1000 - $300)
Tax on Taxable Income (Label T1) = $315 ($700 x 45%)
Scenario 2
Net non-arm's length income (Label U) = $1000
Gross interest (Label C) = $200 (arm's length income)
Admin expense (Label J1) = $300 (arm's length expense)
Remaining expenses available to offset from non-arm's length income = $100
Tax return
Ordinary expenses need to offset against ordinary income first. After all ordinary income is exhausted, only then you can offset these from non-arm's length income.
Taxable Income (Label A) = $900 ($1000 + $200 - $300)
Tax on Taxable Income (Label T1) = $405 ($900 x 45%)
Scenario 3
Net non-arm's length income (Label U) = $1000
Gross interest (Label C) = $200 (arm's length income)
Admin expense (Label J1) = $100 (arm's length expense)
Tax return
Expenses of $100 will be fully applied to offset arm-length income in this case.
Taxable Income (Label A) = $1,100 ($1000 + $200 - $100)
Tax on Taxable Income (Label T1) = $465 ($1,000 x 45% + $100 *15%)