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Division 7A: awaking the sleeping giant paper

Published on 25 Sep 07 by NATIONAL EVENTS, TAXATION INSTITUTE OF AUSTRALIA

For many, the application of Division 7A leaves practitioners in a quandary. The provisions were far too easily breached, and the resultant 'solutions' unpalatable to both clients and advisers. In this way, Division 7A has become a sleeping giant for all who must deal with it.

On 9 December 2006, Minister Dutton announced sweeping changes to address the compliance issues associated with the Division. Legislation to effect these changes was introduced into Parliament on 10 May 2007. The changes include:

  • reduction of the double-penalty nature of Division 7A
  • ability for Commissioner to exercise discretion in relation to deemed dividends
  • defining the interaction of FBT and Division 7A.

This paper reviews:

  • the changes and provide practical advice on just how far the changes extend
  • the likely actions that can now be taken to mitigate existing Division 7A exposures
  • the ongoing risks facing taxpayers in this area.

Author profile:

Gordon S COOPER
Gordon is a chartered accountant in sole practice as a tax consultant. He has a particular emphasis on capital gains tax and is the editor of Cooper’s Capital Gains Tax Guide, which is a loose-leaf service published by Australian Tax Practice and the author of Cooper’s TLIP Capital Gains Tax. He advises on the taxation of international transactions and corporate matters as well as tax matters generally. He is a former President of the Taxation Institute of Australia and is President of the Committee of the Australian Branch of the International Fiscal Association. He is a Visiting Professorial Fellow at the Australian School of Taxation in the Law Department of the University of New South Wales.
Current at 17 October 2008
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Division 7A: awaking the sleeping giant

Author(s):  Gordon S COOPER

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