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Division 7A - trust amounts treated as dividends - overview

 
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About this fact sheet

This fact sheet provides an overview of the rules contained in Subdivision EA of Division 7A of Part III of the Income Tax Assessment Act 1936 (ITAA 1936) that apply to certain trust arrangements.

The rules, which apply from 12 December 2002, are designed to ensure that a trustee cannot shelter trust income at the prevailing company tax rate by creating a present entitlement to an amount of net income in favour of a private company without paying it and then distributing the underlying cash to a shareholder (or their associate) of the company.

However, Subdivision EA does not apply in all circumstances where there is an unpaid present entitlement (see When does Subdivision EA have no application?).

This fact sheet includes a summary table of the amendments made to Division 7A which are relevant to the operation of Subdivision EA. The amendments apply to payments , and loans made, and debts forgiven by trustees on or after 1 July 2009. These amendments include the introduction of interposed entity rules to ensure that the operation of Subdivision EA is not circumvented by interposing entities.

For an overview of the provisions of Division 7A and the meaning of 'associate' refer to the fact sheet Division 7A - overview.

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In applying Subdivision EA to payments, loans and debts forgiven, the trust is treated as a private company for the purposes of determining whether a deemed dividend arises. To enable this to occur there is a modified application of the general Division 7A provisions.

The following fact sheets in this series provide more detailed information on how the Subdivision EA rules apply to arrangements involving payments, loans and debt forgiveness:

Last Modified: Monday, 16 August 2010
 
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