The perceived complexity of Division 7A has led to calls over many years for the provisions to be re-written and simplified.

These calls for simplicity (combined with the Tax Office issuing controversial Taxation Rulings in relation to the Division 7A treatment of UPEs) resulted in the Government commissioning a Board of Taxation report on Division 7A in 2012.  The report was subsequently released in 2015.

Some three years later, in October 2018, Treasury released a consultation paper titled ‘Targeted amendments to Division 7A’, which set out a number of proposed changes to the Division 7A regime.

Treasury’s proposed changes include:

• replacing the existing 7 and 25-year complying loan options with a single 10-year loan option;
• increasing the benchmark interest rate by more than 3% from the current interest rate;
• deeming all UPEs owed to companies to be loans for the purposes of Division 7A;
• removing the ‘grandfathering’ of pre-1997 loans and requiring them to comply with the new repayment requirements;
• removing the distributable surplus requirement (meaning that Division 7A could apply to loans made by a private company with no distributable surplus);
• introducing a self-correction mechanism to allow taxpayers to remedy breaches of Division 7A; and
• increasing the assessment review period for Division 7A arrangements to 14 years.

The consultation period for the Treasury paper closed in November 2018 and at the date of this article, the Government has extended the period for legislative changes to be enacted to 1 July 2020.

Given it has now been over 7 years since the initial Board of Taxation report was commissioned and there remains significant conjecture over the appropriateness of the proposed amendments, it remains to be seen whether the Treasury changes will be implemented in their proposed form at any time in the foreseeable future, notwithstanding the Government’s proposed 2020 commencement date.

For further information, please contact Patrick Ellwood on 0400 503 111 or patrick@cloverlaw.com.au.

• clover law
• Division 7A
• loan
• Taxation
• Treasury