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Fixing Your Division 7A Problems

Published on 26 Mar 2008 | Took place at Tattersalls Club, Sydney , NSW

You have a one off opportunity to fix Division 7A problems if you act before 30 June 2008 under Practice Statement PSLA 2007/20.

Division 7A was introduced with effect from December 1997 to provide tax consequences for shareholders and the associates of shareholders in private companies if the borrowed money had debts forgiven or had payments made on their behalf by private companies. The tax consequences can include deemed dividends that are unfranked and that also lead to companies receiving franking deficits tax assessments.

In March 1998 the operation of Division 7A was expanded to provide tax consequences for shareholders and their associates in private companies that received distributions from trusts (commonly known as ‘corporate beneficiaries’).

Both the rules as they apply to private companies and the rules as they apply to corporate beneficiaries have been modified over time, with perhaps the most important modification being the discretion given to the Commissioner to disregard a breach of the Division 7A rules as a result of section 109RB of ITAA1936. That discretion can be exercised in particular circumstances, but the Commissioner has also used it to provide an ‘amnesty’ so that past Division 7A mistakes can be corrected before 30 June 2008.

Individual sessions

Division 7A: How to identify problems to be fixed under PSLA 2007/20

Author(s):  Andrew NOOLAN

This paper is intended as preparatory to a presentation to be delivered by Mr Dominic Belvedere from the ATO concerning the ATO's views on the operation of section 109RB of the Income Tax Assessment Act 1936 ("ITAA1936") and the exercise of the discretion afforded to the ATO under that section as outlined in Practice Statement PSLA 2007/20. This paper does not therefore address the issues that arise out of the Practice Statement and the calculations required to take a "corrective action". I refer you to the published ATO factsheets for the calculations, and published National Tax Liaison Group meeting minutes (available from for identification of some of the calculation issues.

This paper covers:

  • a brief history of Division 7A
  • dates connected with Division 7A
  • rules applying prior to 4 December 1997
  • rules applying from 4 December 1997
  • common errors in company loans that may require corrective action to be taken
  • rules applying from 27 March 1998
  • rules applying from 12 December 2002
  • changes on 19 February 2004
  • common errors in TRUST loans that may require corrective action to be taken
  • 1 July 2006 changes.
Materials from this session: