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12 Mar 10 Professional Bodies’ meeting with the ATO in respect of TD 2009/D8 - Division 7A loans: trust entitlements

Ken Schurgott FTIA (SBN Lawyers) attended a meeting with the ATO on Wednesday, 10 March 2010 to discuss TD 2009/D8.

The ATO was adamant that on an economic equivalence basis the trustee should pay the top up tax, which they believe is the policy intent of the law. This was despite being confronted numerous times by the professional associations' view that the documentary evidence supported a view that subdivision EA was to be given substantive effect contrary to the draft ruling’s approach. It was pointed out in no uncertain terms that the preferred view of the associations was that the draft ruling should be withdrawn and that if the ATO's view is genuinely that the policy is that reinvestment by the trust should be taxed under Division 7A then they should approach Treasury to have the law changed.

Great emphasis was placed on the fact that tax practitioners who had to apply the Ruling in real time situations would be hard-pressed to do so, due to the manner in which it was drafted, with no real practical perspective in it eg safe harbours. However, the ATO representatives disagreed.

The ATO will now assess the submissions and make decisions about any changes to the draft Ruling which will then go to the Public Rulings Panel. Alternative views will be set out in the Ruling. There will be further discussions with Treasury and the ATO intends to issue a Practice Statement about how to apply the ruling. We do not expect the ATO will produce another draft Ruling for review.

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