Tregloans regularly publishes Newsletters to ensure our clients have access to the targeted information they need to manage and develop their organisations.
For more Latest News, download our latest Newsletter below:
Tregloans' May 2013 Newsletter (PDF 983kb)
Subscribe Now to the next issue of our Newsletter.
Small Business Tax Breaks
Cash Bonus for Taxpayers
Federal Budget 2008-09
Christmas Cheer and
Distributions by Trusts to Corporate Beneficiaries
Over the past year or so, there has been a lot of attention on the ATO intending to crackdown on tax planning using trusts.
The latest target has been discretionary trusts that make distributions of their income to private companies ('corporate beneficiaries'). In particular, the ATO has concerns with trusts declaring distributions to such corporate beneficiaries, but not actually paying the amount to that beneficiary – that is, leaving it in the financial records of the trust as an unpaid present entitlement. By doing this, the funds are left in the trust to be reinvested and a liability is recorded to show the amount that is payable to the corporate beneficiary.
The ATO has now released a new ruling (TR2010/3) and a draft practice statement (PSLA3362) outlining their current views on such arrangements. These documents are a significant shift in the ATO views of unpaid present entitlements to corporate beneficiaries from the views and practices they have permitted for many years.
Essentially, the ATO is now taking the view that in certain situations, such unpaid present entitlements may be treated as 'loans' by the corporate beneficiary to the trust. This means that Division 7A of the Income Tax Assessment Act may apply to treat such “loans” as deemed dividends and taxable to the shareholders of the company.
The ruling was released in December 2009, but certain sections apply both before and after the date of its release.
The ruling broadly applies in the following situations:
The ruling concludes that a Division 7A loan will arise where:
The draft practice statement sets out practical guidance to assist in the application of the Commissioner‟s position, including guidance in relation to:
As these issues are complex, taxpayers should consider the impact of the ruling and the practice statement on their affairs very carefully.
We will be working through these situations with each of our clients who are affected, with a view to minimising any adverse tax consequences that may arise.
We believe the advice and information contained in this newsletter to be accurate and reliable but no warranty of accuracy or reliability arising in any other way for errors or omissions (including responsibility to any person by reason of negligence) is accepted by the company or its officers.