TaxRambling.com

The Federal Court just said Division 7A does NOT apply to an unpaid present entitlement to a corporate beneficiary unless there is a loan to an individual shareholder as well!!!! See Commissioner of Taxation v Bendel [2025] FCAFC 15 (19 February 2025). They write….

“Division 7A is an anti-avoidance provision directed at in substance distributions of private company profits. It operates according to its terms. By the terms of Subdiv EA where company profits referable to a UPE make their way to a taxpayer who is subject to tax at personal rates, there is a deemed distribution to that taxpayer and the benefit of the corporate tax rate is lost. That was the mischief perceived by the legislature. Subdivision EA expressly excludes a private company’s UPEs that make their way to another company (see s 109XA(1)(a) in respect of payments and s 109XA(2)(a) in respect of loans). The legislature did not perceive a mischief in respect of UPEs in the way that the Commissioner now perceives.”

A trust can make a company presently entitled, give the company 25/30% to pay the tax and keep the remaining 75/70% as working capital in the trust without worrying Division 7A… as long as the trust does not make loans to the shareholders of the company (when Div 7A does apply through subdiv EA).

That means the Commissioner has been wrong on this since December 2009 and we have wasted lots of time and paid way too much tax…