As noted previously, the recent Administrative Appeals Tribunal (AAT) decision of BPFN and Commissioner of Taxation (Taxation) [2023] AATA 2330 (28 July 2023) (BPFN) had struck a blow to the ATO’s strict approach to non-arm’s length income (NALI) and taken a more general commercial approach to NALI.
Since then, the ATO has issued a draft Decision Impact Statement (DIS) on this case dated 10 April 2024 requesting feedback by 10 May 2024. The ATO confirms that it will not appeal the decision.
In an interesting, but not surprising, approach, the ATO is happy to endorse the parts of the decision in its favour (the width of the scheme and that there was non-arm’s length dealings) but tries to read down the adverse finding (that the super fund did not derive more income than an arm’s length arrangement). In particular, the ATO notes:
“While noting the Tribunal's conclusion at [95], that JJUT (and presumably BPFN as sole unit holder) did not derive more income under this particular scheme based on the evidential findings made by the Tribunal, we would question whether this decision can be extrapolated to arrangements involving private lending arrangements more broadly.
When considering the application of subsections 295-550(1) or (5) to a scheme involving private lending arrangements, it is necessary in each case to consider whether the terms, rates of return and other remuneration of the parties dealing with each other in relation to each step of the scheme are consistent with that which arm's length parties bargaining in their own self-interest would expect.”
So where does this leave us? Well, we know the ATO view – benchmarking evidence is required for the arrangement. BPFN has shown that benchmarking is not strictly required, however, expert evidence as to the commerciality of the arrangement will most likely be required if the matter ends up in a Tribunal or Court.
For further information please contact:
Phil Broderick
Principal
T +61 3 9611 0163 l M +61 419 512 801
E pbroderick@sladen.com.au
Terence Wong
Senior Associate
T +61 3 9611 0112 l M +61 0458 846 022
E twong@sladen.com.au