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Determination on Div 7A, UPEs and sub-trusts finalised
The ATO released TD 2022/11 on 13 July 2022. The Determination finalises TD 2022/D1 and sets out the Commissioner’s updated views on when an unpaid present entitlement (UPE) or amount held on sub-trust constitutes the provision of financial accommodation for Div 7A purposes.
The finalised Determination contains a significant change in the Commissioner’s view regarding the timing of when a private company beneficiary will be taken to know of a present entitlement conferred upon it. In TD 2022/D1, the Commissioner’s view was that the time when the amount of a beneficiary’s entitlement is known depends on how that entitlement is expressed. That is, if a trustee resolved to make a private company beneficiary presently entitled to:
- a fixed amount of trust income, the Commissioner considered the private company beneficiary would have a right to demand immediate payment of that amount; and
- a percentage of trust income (or some other part of trust income identified in a calculable manner), the Commissioner considered the private company beneficiary would only be able to demand immediate payment when the trust income had been calculated (typically after the end of the relevant income year),
(TD 2022/D1 at [11]).
In comparison, the Commissioner’s view as expressed in the finalised Determination is that the time when the amount of a private company beneficiary’s entitlement is known will typically arise at the end of the income year (that is, in the following income year), regardless of how the entitlement is expressed (TD 2022/11 at [12]).
In summary, the Commissioner’s updated position is that a private company provides ‘financial accommodation’ for the purposes of Div 7A:
- in respect of a UPE – to the trustee of the relevant trust if the company has knowledge of an amount that it can demand payment of from the trustee and it does not do so; or
- in respect of an amount held on sub-trust – to the shareholders of the private company and their associates if the private company by arrangement, understanding or acquiescence consents to the sub-trustee allowing all or part of the sub-trust funds to be used for the benefit of the company’s shareholders or their associates (including the head trust), even if that use is on commercial terms with a return paid to the sub-trust fund.
A private company will be deemed to have the requisite knowledge at the same time as the trustee/sub-trustee if it and the relevant trustee/sub-trustee have the same ‘directing mind and will’.
TD 2022/11 applies to trust entitlements arising on or after 1 July 2022. For entitlements arising before 1 July 2022, the Commissioner has undertaken not to devote compliance resources to sub-trust arrangements entered into in reliance on the guidance contained in TR 2010/3 and PS LA 2010/4 (both of which were withdrawn with effect from 1 July 2022), even if the relevant sub-trust is created after 1 July 2022.
COVID-19 relief for SMSF trustees has ended
The ATO has issued a reminder for the trustees and approved auditors of SMSFs that the relief and support offered to SMSFs financially impacted by COVID-19 ended on 30 June 2022. This included:
- SMSF residency relief;
- rental relief (including rental reductions, waivers and deferrals);
- loan repayment relief, including for limited recourse borrowing arrangements; and
- in-house asset relief.
As a result of the relief, which was offered in recognition of the significant financial impact COVID-19 had on SMSFs, trustees (or a related party of an SMSF) were permitted to provide or accept certain types of relief which technically resulted in contraventions of the superannuation law.
Since the relief is now at an end, for the 2022-23 income year and later income years:
- the ATO expects trustees to comply with their obligations under the income tax and super laws that were previously covered by the relief; and
- approved SMSF auditors must now report contraventions to the ATO via the auditor/actuary contravention report (ACR) in situations where the reporting criteria is met.
If a contravention does occur, trustees should use the ATO’s voluntary disclosure service and make a plan to rectify the contravention as soon as possible. The ATO will consider any voluntary disclosures when determining what actions to take.
Rulings issued
The ATO has issued the following:
- CR 2022/62 – Totium Pty Ltd – Health services provided to employees via The Exec Check program;
- CR 2022/63 – Crestone Holdings Ltd – Scheme of arrangement and dividends;
- CR 2022/64 – Western Areas Ltd – Employee share scheme – shares disposed of under scheme of arrangement;
- CR 2022/60A1 – Addendum to CR 2022/60 – BHP Group Limited – Dividend by way of in specie distribution of Woodside Energy Group Ltd shares; and
- CR 2022/61ER1 – Erratum to CR 2022/61 – Minotaur Exploration Ltd – Reduction of share capital and scrip for scrip roll-over.
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