Unpaid Trust Distributions: ATO's Rulings vs. Recent AAT Decision and What It Means for 2023
It has long been the ATO’s practice to treat a trust’s unpaid present entitlements (“UPE”) to a company as a loan for th...
Right on the heels of the recent Guardian court appeal where the commissioner succeeded in applying the anti-avoidance provisions in Part IVA, the Australian Taxation Office has released taxpayer alert TA 2023/1 Interposition of a holding company to access company profits tax-free. This alert advises that the ATO is currently overlooking arrangements where the following occurs:
The ATO considers where an arrangement displays all or most of these features the arrangement would have a dominant purpose of tax avoidance.
The below example from the Tax Alert illustrates the broad features of the arrangements that the ATO is concerned with.
Example from Tax Alert:
As at 30 June 2020, the accounting records of HoldCo provide that the $1,000,001 net assets (consisting of $999,990 loan receivable, 10 shares in AustCo fully paid up to $1, and $1 cash at bank) is equal to the amount of paid-up share capital ($1,000,001). The accounting records of AustCo provide that the $10 net assets ($10 cash at bank) is equal to the amount of paid-up share capital ($10).
Therefore, Division 7A does not operate to treat Jack as having received a dividend in the 2019-20 income year.
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Please contact our Ulton Tax Advisory Team if you wish to discuss this recent tax payer alert further.
Sources
Guardian AIT Pty Ltd ATF Australian Investment Trust v Commissioner of Taxation [2021] FCA 1619 (21 December 2021)
TA 2023/1 Interposition of a holding company to access company profits tax-free
https://www.ato.gov.au/law/view/view.htm?docid=%22TPA%2FTA20231%2FNAT%2FATO%2F00001%22
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