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Tightening non-commercial loan rules

Publication date: 01 Feb 10 | Source: THE TAX INSTITUTE

Australia's leading professional association in tax, the Taxation Institute of Australia, generally supports the intent of the proposed amendments to Division 7A to tighten the non-commercial loan rules. In this regard, Taxation Institute President, David Williams said "we recognise the need to address integrity issues. However, the Taxation Institute has some serious concerns regarding the current drafting of the proposed legislation". 

In summary, the Taxation Institute's concerns relate to the following issues:

  • Multiple taxation of benefits not actually provided;
  • Uncertainty caused by excessive reliance on the formation of opinions by the Commissioner of Taxation;
  • The commencement and application of the proposed legislation;
  • Fairness and equity concerns arising from the different taxation valuation methodologies applied to shareholders compared to employees; and
  • Potential denial of entitlement to the Small Business and General Business Tax Break.

The draft legislation removes the scope for private companies to allow company assets - such as real estate, cars and boats - to be used for free, or at less than their arm's length value without paying tax.

Under the current Division 7A provisions, certain payments and loans by private companies to their shareholders are treated as deemed dividends. Under the new legislation the definition of "payment" has been expanded to include a lease, licence or right to use company assets.

Taxation Institute President, David Williams has said that "unless the drafting of the provisions is amended, the expanded definition is likely to lead to uncertainty and unintended outcomes not only for those using lifestyle assets but for farmers working on the land".  

Given these concerns, the Taxation Institute submits that the draft legislation needs be amended before it is finalised.

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Media Contacts:
David Williams, President - Taxation Institute of Australia on 02 9958 5121
Angie Ananda, Tax Counsel - Taxation Institute of Australia on 02 8223 0011