Fixing Your Division 7A Problems

Published on 26 Mar 2008 | Took place at Tattersalls Club, Sydney, NSW

You have a one off opportunity to fix Division 7A problems if you act before 30 June 2008 under Practice Statement PSLA 2007/20.

Division 7A was introduced with effect from December 1997 to provide tax consequences for shareholders and the associates of shareholders in private companies if the borrowed money had debts forgiven or had payments made on their behalf by private companies. The tax consequences can include deemed dividends that are unfranked and that also lead to companies receiving franking deficits tax assessments.

In March 1998 the operation of Division 7A was expanded to provide tax consequences for shareholders and their associates in private companies that received distributions from trusts (commonly known as ‘corporate beneficiaries’).

Both the rules as they apply to private companies and the rules as they apply to corporate beneficiaries have been modified over time, with perhaps the most important modification being the discretion given to the Commissioner to disregard a breach of the Division 7A rules as a result of section 109RB of ITAA1936. That discretion can be exercised in particular circumstances, but the Commissioner has also used it to provide an ‘amnesty’ so that past Division 7A mistakes can be corrected before 30 June 2008.