Entities and taxpayers affected
Entities potentially affected by Division 7A include:
Division 7A applies to payments and other benefits by private companies including:
- non-resident private companies – the payment or other benefit doesn't have to be provided by a private company that is a resident or has any connection with Australia (other than by reason of providing the payment or other benefit to an Australian resident)
- closely held corporate limited partnerships (that is, with fewer than 50 members or where another entity has, directly or indirectly and for its own benefit, an entitlement to a 75% or more of the partnership's income or capital) – payments or benefits provided to partners or their associates (see Division 7A - closely held corporate limited partnerships).
Shareholders and their associates
Division 7A applies to payments or other benefits provided by a private company to shareholders or associates of the shareholders.
Payments or loans to shareholders or their associates that are companies are not treated as Division 7A dividends except where the company shareholder or associate is trustee of a trust.
Even after an entity ceases to be a shareholder or their associate, payments or other benefits subsequently provided to them may still be treated as a dividend if the benefit was provided because the entity had been a shareholder or their associate.
For the purpose of Division 7A, equity holders and non-share equity interests are treated in the same way as shareholders and shares.
The definition of an associate is very broad and depends on what type of entity the shareholder is.
For an individual shareholder, an associate includes:
- a relative of the individual
- a partner of the individual or a partnership in which the individual is a partner
- the spouse or child of an individual partner
- a trustee of a trust under which the individual or an associate benefits
- a company under the control of the individual or associate.
For a company shareholder, an associate includes:
- a partner of the company or a partnership in which the company is a partner
- a trustee of a trust under which the company or associate benefits
- another individual or associate who controls the company
- another company that is under the control of the company or the company's associate.
For a trustee shareholder, an associate includes an entity or associate of the entity that benefits or is capable of benefiting under the trust.
For a partnership shareholder, an associate includes each partner of the partnership or their associates.
Division 7A applies to certain payments or other benefits provided by a trust to shareholders or their associates where the private company has an unpaid present entitlement (UPE) to the profits of the trust.
An amount may be treated as a Division 7A dividend even if it's paid or lent by the private company to the shareholder or their associate through one or more other entities.
Payments or loans may be treated as Division 7A dividends where they are made on the understanding that the interposed entity, or a further interposed entity, will pay or lend an amount to the shareholder or their associate.
Entities potentially affected by Division 7A include private companies, their shareholders or associates of shareholders, trusts, and interposed entities through which benefits are paid.