From www.smsfadviser.com: Natalie Scott, a superannuation adviser at Accurium, explained that avoiding non-arm’s length income penalties hinges on the application of non-arm’s length expense rules and specific sections of the Income Tax Assessment Act.

She noted that deductions for tax affairs under Section 25.5 do not require a direct nexus to assessable income, allowing certain expenses to be claimed.

Scott categorised non-arm’s length income and expenses into three buckets, highlighting specific circumstances under which the non-arm’s length rules would or would not apply to SMSF income and expenses.