Question:
Court changes Commissioner’s mind on Div 7A tax liability
Answer:
Recent changes are outlined below:
July 1, 2022
- Loss carry back for eligible companies extended to cover 2023 income year.
- Professional firm profits diverted to the professional's spouse or other associates to be reviewed under new Tax Office guidance.
- Corporate collective investment vehicle legislative regime introduced.
- Temporary full expensing of depreciating assets extended to include 2023 income year.
- Depreciable assets of a company joining a tax consolidation group have tax costs setting rules modified for assets depreciated under temporary full expensing rules.
December 9, 2021
- Reduced Pandemic leave disaster payment of $750 per week made available through to 30 June 2022.
August 5, 2021
- COVID-19 Disaster Payments are non-assessable non-exempt income in 2021 income year and later. Payments phasing out as vaccination rates increase.
July 1, 2021
- New Investment Engagement Service launched for businesses planning significant new investments in Australia.
- Tax Office small business independent review service made permanent for businesses with turnover < $10m, for income tax, GST, exercise, luxury car tax, wine equalisation tax and fuel tax credits. Requested before amended assessment issued.
- Small business income tax offset for individuals increased to provide a reduction of 16% for a tax payable up to $1,000.
- Self-managed superannuation funds can now have six members, increased from four members previously.
July 1, 2021
- Some COVID -19 state and territory business grants received by small and medium enterprises are non-assessable, non-exempt income for 2021 and 2022 income years.
- Certain state, territory and local government financial support for individuals and businesses suffering COVID-19 impacts made exempt where businesses have turnover less than $50 million and only in eligible programs.
March 31, 2021
- JobKeeper payments scheme ended.
October 5, 2020
- Boosting apprenticeship commencements subsidy (up to 50% of apprentice's wages) is assessable income.
June 4, 2020
- Homebuilder grant for new home or substantial renovation construction is not subject to income tax.
April 1, 2020
- COVID-19 cash flow boost payments are not subject to income tax
Deemed dividends where a company makes payments or loans, or forgives a debt to a shareholder or their associate, may be reduced following a decision of the Full Federal Court and the issue of a replacement Draft Tax Determination about when income tax becomes a present legal obligation.
The infamous Division 7A of the 36 Tax Act can deem a dividend (usually unfranked) to be paid where a company pays money, loans money, forgives a debt or provides the use of an asset to a shareholder or associate. The amount of the deemed dividend is limited to the “distributable surplus” which is calculated in a similar but slightly different formula to the retained earnings of the company.
The previous Tax Office position was that income tax did not become a liability for the purposes of calculating the distributable surplus until an assessment had issued.
Following the Court decision in 2010, the Tax Office now says the tax liability can be taken into account where:
+ Some or all of an instalment is unpaid at 30 June; and
+ A full self-assessment taxpayer has an amount due and payable (less any credits for instalments payable) even though the amount may not be due for a number of months after the end of the year.
Careful calculation of the distributable surplus may reduce the deemed dividend amount for taxpayers who have not put in place the appropriate loan documents.
TD 2012/D1, s 109Y (2) of 36 Tax Act, FCT v H (2010) FCAFC 128, WTB 2012/46
