With the new edition of the Division 7A Handbook publishing in October, a timely article appeared in The Tax Institute’s journal, Taxation in Australia. Read on for a summary, and click any of the links below to view the full article.
The Commissioner has recently issued several interpretative decisions and a final determination on aspects of Div 7A which need to be noted.
Loan agreement amounting to new loan
Interpretative decision ID 2012/60 considers the situation where a private company makes a loan in an income year (the original loan) and, in the following income year (and before the relevant lodgment day), puts in place a written loan agreement which amounts to a new loan. It is concluded that Div 7A and, in particular, s 109D of the Income Tax Assessment Act 1936 (Cth) (ITAA36) applies to the original loan in the income year in which the original loan is made.
When amalgamated loan made
Another interpretative decision makes it clear that, if a private company makes a loan in an income year and, in respect of the loan, in the following income year (and before the relevant lodgment day) puts in place an agreement that satisfies the criteria in s 109N ITAA36, the income year in which an amalgamated loan is taken to be made (for the purposes of Div 7A) is the income year in which the loan is made (ID 2012/61). The putting in place of a complying loan agreement, in respect of a loan, does not alter the date on which the loan was made.
Unpaid present entitlements unit trusts
Another recent interpretative decision concludes that, where all unpaid entitlements (UPEs) in a fixed trust are mixed with the trust fund but employed by the trustee to benefit all corporate beneficiaries (by retiring trust debt) in the exact same proportion as each unpaid entitlement bears to the total of all unpaid entitlements, a loan will not arise for the purpose of Div 7A (ID 2012/62).
Distributable surplus calculation: income tax
A final determination has been issued by the Commissioner which considers, in light of the Full Federal Court’s decision in FCT v H ( FCAFC 128), when income tax of a private company is a “present legal obligation” and, therefore, taken into account when calculating the company’s distributable surplus under s 109Y ITAA36 (TD 2010/10).
This article originally appeared in Taxation in Australia, Vol 47(2) 67, prepared by TaxCounsel.
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John Gaal of TaxCounsel is the author of our Division 7A Handbook, the new 2012-13 edition of which publishes in November. Find out more and take advantage of our special pre-sale offer – you’ll save 15% when you place your order before 9 November 2012.
The Tax Institute is Australia’s leading professional association in tax. Its 13,000 members include tax agents, accountants and lawyers as well as tax practitioners in corporations, government and academia.