Compliance program 2011-12

Division 7A

Division 7A of Part III of the Income Tax Assessment Act 1936 (ITAA 1936) is an integrity measure aimed at preventing private companies from making tax-free distributions of profits to shareholders (or their associates). We are concerned that private company owners and some tax advisors do not fully understand their obligations regarding the correct treatment of company funds received by shareholders and associates other than by way of dividend.

We will issue around 350 pre-lodgment awareness letters to private companies and shareholders reminding them to put in place compliant loan agreements prior to lodging their tax returns. We will also contact private company owners through their tax representatives to verify compliance with their Division 7A obligations.

This year we are also focusing on the application of Division 7A to unpaid present entitlements. To help taxpayers meet their obligations, we will contact the owners or shareholders of private companies we have identified as having trust distributions in the past. We will advise private company owners about how the law applies, as explained in Practice Statement Law Administration 2010/4 and Tax Ruling 2010/3.

To help provide certainty regarding whether an unpaid present entitlement can satisfy the extended definition of loan for Division 7A purposes, we are working with the tax profession to identify a suitable case for test case funding.

Sections within Small-to-medium enterprises

• Private groups
• Highly wealthy individuals
• Wealthy Australians
• $100 million - $250 million segment
• Employer obligations
• Lodgment compliance
• Trusts
• Phoenix arrangements
• Overseas interests and international dealings
• Division 7A
• Capital gains tax
• Foreign residents
• Capital and revenue losses
• Restructuring by professional firms
• Fringe benefits tax
• Taxation of financial arrangements (TOFA)
• Small business and general business tax break
• Goods and services tax (GST)
• Refund integrity
• Property
• Retirement villages
• Integrity of business systems
• Financial supplies
• International and cross-border transactions
• GST serious evasion
• Excise
• Excise equivalent goods
• Tax reporting of exports including excisable goods
• Wine equalisation tax
• Alternative fuels
• Superannuation
• Managing business tax debt