Published on 13 Nov 12
by NEW SOUTH WALES DIVISION, THE TAX INSTITUTE
Since the ATO changed its stance on private company UPEs (amounts owed to corporate beneficiaries) on 16 December 2009 the application of the rules in Division 7A to trusts and beneficiaries has become more much more complicated. This paper covers what you need to know when:
- You have quarantined pre-16 December 2009 private company UPEs – did you know that they can cause section 109XB to apply to loans to shareholders and associates in the corporate beneficiary?
- You have to decide between paying down a private company UPE, putting in place a loan agreement, or using a sub-trust arrangement – did you know that as long as you manage the cash-flow implications, a sub-trust is often best?
- You have put in place a written loan agreement and the private company UPE is later paid out – did you know that this doesn't remove the requirement to make minimum annual repayments?
- You have no pre-16 December 2009 private company UPEs – did you know that there is no longer a real potential for Division 7A deemed dividends to arise where a shareholder borrows money from the trust?
- There is a potential unreported Division 7A deemed dividend – did you know that because there is no debit to the franking account when there is a deemed dividend, that the deemed dividend rules only create a timing issue, and not a real tax burden, in most cases where there are deemed dividends?
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Michelle Hartman FTIA is a Director in the tax consulting division of Deloitte Growth Solutions. She has many years experience in providing practical tax advice to clients. She regularly advises SME clients across a wide range of industries on restructuring businesses, asset acquisitions and sale transactions. Michelle has extensive knowledge of the CGT small business concessions. Current at 20 November 2008
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