Division 7A - trust amounts treated as dividends - payments

Is the creation of a present entitlement to the capital or income of the trust a payment?

No.

The creation of a present entitlement to the capital or the income of the trust in favour of the beneficiary or private company is not taken to be a payment.

Example 3

Declaration of present entitlement in favour of shareholder or associate not a payment

The same facts as in example 2 except that the trustee does not draw the cheque in favour of Mary, but rather takes the $30,000 to an account titled 'Beneficiary trust entitlement - Mary'. In this case there has been a declaration of present entitlement to the $30,000 unrealised capital profit and nothing more. This does not give rise to an unfranked dividend of $30,000 to Mary. However, when the trustee does pay Mary the $30,000, there may be an unfranked dividend subject to the distributable surplus of Marbles Pty Ltd (as in example 2).

Example 4

Declaration of present entitlement in favour of private company not a payment

The same facts as in example 2 but the trustee declares present entitlement to the $100,000 net income of the trust on 30 June 2007 and this is paid to Marbles Pty Ltd on 29 May 2008.

The declaration of the $100,000 present entitlement to the net income of the trust in favour of Marbles Pty Ltd is not taken to be a payment for the purposes of whether the trustee has paid the present entitlement due to Marbles Pty Ltd before the earlier of the due date for lodgment or the date of lodgment of the trust's tax return for the 2007 income year. It is the payment on 29 May 2008 that is relevant for this purpose.