Unpaid Present Entitlements to a Corporate Beneficiary… Not Again

The Commissioner has released a Practical Compliance Guideline to help those who used PS LA 2010/4 to sort out their UPEs to corporate beneficiaries 7 years ago.

PSLA 2010/4 states that the Commissioner will not treat the UPE to the corporate beneficiary as a Div 7A deemed dividend if, under a written agreement, the trust pays the company interest for 7 year and then pays the principal of the UPE at the end of the 7-year interest only loan (called Option 1).

Those trustees who adopted investment Option 1 on, or before, 30 June 2011 must now repay the principal of the loan in the 2017 income year or 2018 income year!!!!

But in this new Practical Compliance Guideline, the Commissioner states that if all, or part, of the principal of the loan is not repaid at the end of the 7 years of interest only, the Commissioner will accept that a new additional 7-year loan on complying terms in accordance with section 109N may be put in place between the trust and the private company beneficiary prior to the private company’s lodgment day. This will provide a further period for the amount to be repaid with periodic payments of both principal and interest.

So it looks like the 7 year interest free loan under Option 1 becomes a 17 year loan with interest only for the first 7 years and P&I for the next 7 years.

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About Ken Mansell

As a stay at home Dad most of the week this is my way of pretending I am still the tax counsel of ASX and SEC listed companies, working at big 4 firms, working at the Federal Treasury, on the Henry Review and at Parliament House for the previous government.
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