January technical paper - 'Division 7A structuring: the contortionist revisited'

Ron Jorgensen, Partner at Rigby Cooke Lawyers
Each month, members of The Tax Institute can access a complimentary, recently-published technical paper that provides relevant, up-to-date information on a current issue for tax professionals.

January’s paper is Division 7A structuring: the contortionist revisited by Ron Jorgensen, Partner at Rigby Cooke Lawyers.

Jorgensen explains that Division 7A of the Income Tax Assessment Act 1936 has inherent structural, interpretative, operative and administrative uncertainties.

It’s a common problem area for tax practitioners, as it is difficult to construe and apply, is often misunderstood, and results in high compliance costs and frequent, unintended breaches.

The paper discusses and assesses the risks of Div 7A loan and UPE (unpaid present entitlement) compliance management and repayment planning options, and the potential impacts of proposed Div 7A reform.

It includes:

  • an outline of the trust law and tax law nature of UPE and UPE compliance obligations
  • the intersection of Div 7A deemed dividends, Div 245 debt forgiveness, Div 974 ‘at call’ loans and sec 100A reimbursement agreements on UPEs
  • the likely impact of the Board of Taxation and 2016 Federal Budget proposed reforms
  • strategies for managing pre-1997 loans and UPEs and pre-2009 quarantined UPEs
  • complying loan agreements and investment strategies for UPEs
  • strategies for repaying loans and UPEs and sec 109R disregarded repayments, and
  • strategies for restructuring loans and UPEs to extend repayment terms or so that Div 7A doesn’t apply.

If you’re a member of The Tax Institute, you can download the paper here, without charge. If you’re not an Institute member, a fee will apply.

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