Issue

How to process Non-Arm's Length Income (NALI) in Class.

Background

As Class does not support the full NALI and  Non-Arm's Length Expense (NALE) process, you will need to use the workaround explained below.

Step 1: Add a New Income Expense Type

Step 2: Take up the income at the Fund Level

Step 3: Manually adjust the Provision for Tax

Step 4: Update the tax return manually

Resolution

Step 1: Add a New Income Expense Type

Navigate to the Business level > Settings > Fund income

1. Select Fund Income to "Category Type"
2. Click on Add New Income Expense Type
3. Create an income type with Tax Return Label - S- Other income and Pension Apportionment Method as Not Apportioned.
   
   
   

Refer to User Guide, Income and Expense Type Settings for detailed steps on setting up a new income or expense type.

Step 2: Take up the income at the Fund Level

Navigate to the Fund level > Transactions > Fund Income > Fund General Income

1. Select this income type from the drop-down list
2. Create the income event

Step 3: Manually adjust the Provision for Tax

Navigate to the Fund level > Periodic Processing > Period Updates

1. Select the relevant Financial Year
2. Click on the Period update with the end date as 30 June xxxx
3. From the pop-up screen, click on Post Fund Income Tax Expense
4. From the new window, click on Edit and manually enter the Provision for Income Tax.
5. Click on Save.
6. Close the pop-up screen
7. Click on Finalise Tax button

Refer to our User Guide View and Amend Income Tax Expenses

Step 4: Update the tax return manually

Navigate to the Fund level > Periodic Processing > Browse Tax Lodgments

Select the relevant Financial Year

1. Click on Annual Return
2. Click on Section B
3. Enter the Income U1, U2 or U3

Class will then update tax under Section D tab automatically.

The SMSF Annual Return has been designed so it will only allow positive NALI to be reported. In case of negative NALI, you need to report the amount as nil and record NALI losses as a separate tax record, to be used for future NALI. 

The Statement of Taxable Income won't reflect this but you may make a note for the fund.