Targeted amendments to Division 7A
The Government is widening the scope of Division 7A to include unpaid present entitlements from 1 July 2019.
This will apply where a related private company is entitled to a share of trust income as a beneficiary but has not been paid that amount (unpaid present entitlement).
Division 7A is an integrity rule that requires benefits provided by private companies to taxpayers to be taxed as dividends unless they are structured as Division 7A complying loans or where another exception applies.
The Government aims to clarify the operation of the Division 7A integrity rule to ensure the unpaid present entitlement is either required to be repaid to the private company over time as a complying loan or subject to tax as a dividend.
Additionally, the targeted amendments announced in the 2016-17 Budget, aimed at improving the operation and administration of Division 7A, have now been delayed to commence from 1 July 2019. This will enable all the Division 7A amendments to be progressed as part of a consolidated package.
From 1 July 2019, the following measures will be introduced:
– A self-correction mechanism to assist taxpayers to rectify inadvertent breaches of Division 7A promptly.
– Appropriate safe harbour rules to provide certainty and simplify compliance for taxpayers.
– Simplified rules regarding complying Division 7A loans, including loan duration and the minimum interest rate.
– A number of technical amendments to improve the integrity and operation of Division 7A and provide increased certainty for taxpayers.