Self-managed superannuation funds are required to transact on an arm’s length basis, meaning purchase and sale price of fund assets should always reflect the true market value, and it should be traded or structured on commercial terms.

This prevents investors from taking a ‘mates rates’ approach to structuring their SMSF, and giving themselves an unfair advantage over other taxpayers.

In about 2014, the ATO started to crack down on SMSFs not sticking to the non-arm’s length income (NALI) rules. That’s now starting to bear fruit for the ATO, according to Stuart Forsyth, former senior superannuation official at the Tax Office.

Mr Forsyth said he has seen numerous situations recently where the SMSF trustee has been issued a statement by the commissioner, in the form of a position paper, which indicates there’s been a case of NALI.

A fund can land tax bills in the vicinity of 47 per cent if NALI is proven.

“There are some serious issues there so if someone plans to advantage their fund in any way or they’re going to deal on a non-arm’s length basis with their fund, then they really need to get advice before they do that so that they've got a defensible position if the commissioner comes along some years later,” Mr Forsyth said.

To read more about how the non-arm's length provisions apply to SMSFs, click here.