A few weeks after 4 December 1997 I was told about my first Division 7A avoidance idea. And by mid 2008 the first amendment to Division 7A came about to undo this idea (the old section 109UB to stop trusts loaning corporate UPEs to owners).
Since then I have been asked lots of times to advise on new ways to avoid Division 7A so that shareholders can get access to income at a 30% tax rate.
And the Commissioner has just raised concerns about another idea to get the 30% tax rate.
In Taxpayer Alert TA 2015/4 the Commissioner states that setting up a partnership where a substantial amount of the partnership interests are held by companies, and the partnership loans these amounts to the owners, will not be effective at getting the 30% tax rate for the high income owners.
The Commissioner states that if you drop in one of these partnerships between the business in a company and the shareholders, this still might be a financial accomodation and Division 7A will still apply. If the income comes from the trust to these new partnerships the commissioner states it could be a reimbursement agreement under section 100A. And of course, the Commissioner threatens the general anti avoidance rule in Part IVA. And when the current Commissioner makes this threat he means it.
Have a look at the diagram in the Taxpayer Alert if you want a good summary of the arrangement the Commissioner is concerned about.
My general comments on Division 7A avoidance ideas that give a 30% tax rate to income for high income individuals… A 19% tax saving is big – big enough to easily justify getting a private ruling from the Commissioner. So why IN EVERY CASE I HAVE BEEN ASKED TO LOOK AT has the person who developed the idea not want my client to get a private ruling from the Commissioner? Some have wanted confidentiality agreement so that my client cannot disclose the idea to the Commissioner. I wonder why???
But the battle continues until the highest marginal tax rate gets closer to the company tax rate…