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In a media release issued on 14 September 2009, the Assistant Treasurer, Senator Nick Sherry, released the post-consultation details of the 2009-10 Budget measure to tighten the non-commercial loan rules.

The Budget measure will prevent private companies from making "payments" to shareholders using company assets, such as providing access to holiday houses, cars and other luxury items, which are then priced at less than market value and disguised as tax-free distributions.

This loophole arises because a lease of real property is not present in such cases and a "payment" does not arise if only a right-to-use or licence gives access to the company house, boat or other asset. The Budget measure will directly rectify this loophole by covering licences and rights-to-use.

The Government undertook public consultation following the announcement of the measure and has now clarified aspects of the measure to ensure both the rural and small business communities are not unintentionally impacted.

The non-commercial loans measure will now include:

  • an "otherwise deductible rule" for certain payments – any "business use" assets (that is, not for private purposes) that are provided to a shareholder under a right-to-use or a licence (but not a lease of real property) will be disregarded from the amount of any "payment" made to shareholders as they will be deemed to be otherwise deductible.
  • a "residence exemption" for certain payments – any residence that is an integral part of the business real property and is owned by a private company but is lived in under a right-to-use or a licence as part of the carrying on the business is disregarded.

The Minister said that exposure draft legislation amending Division 7A of ITAA 1936 to give effect to the final form of the measure will be released shortly for public consultation.

For a copy of the Minister's media release, No 2009/051, 14 September 2009, go here


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