Miscellaneous 2023

The "matching principle" - a coherent framework to understand Division 7A

Source: The Tax Specialist Journal Article

Published Date: 1 Feb 2023


This article puts forward the proposition that Div 7A within Pt III of the Income Tax Assessment Act 1936 (Cth) embodies a matching principle; that is, Div 7A should only operate where there is a match between the profits of a private company and the means by which a disguised dividend can be made as specifically chosen by parliament (eg payments, loans and forgiven debts). However, this matching principle has been constantly overlooked by parliament and by the Commissioner. As a consequence, anomalies in the operation of Div 7A have proliferated, and these are demonstrated and discussed in this article. Nevertheless, in the authors' view, this matching principle is the thread running through the various provisions of Div 7A, and an appreciation of that principle will provide taxpayers and practitioners with a compass, if not a GPS, to navigate this minefield.

Author Profile
Buck Xiao CTA

Author Profile
Robert Lissauer CTA

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Miscellaneous 2023

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