Division 7A - Exercise of Commissioner's discretion under section 109RB to disregard the operation of Division 7A or allow a deemed dividend to be franked
About this fact sheet
This fact sheet provides more information about the Commissioner's discretion to disregard the operation of Division 7A or to allow a deemed dividend to be franked. In this fact sheet, unless otherwise specified, a reference to the Commissioner's discretion is a reference to the Commissioner's discretion under section 109RB of the Income Tax Assessment Act 1936.
For an overview of the provisions of Division 7A and the meaning of 'associate', refer to the fact sheet Division 7A - Overview.
The overview fact sheet includes a summary of the amendments made to Division 7A with effect for the income year in which 1 July 2006 has occurred and for later years ('the 2007 amendments'). In this fact sheet, the first year in which the amendments apply is referred to as the 2006-07 income year.
The exercise of the Commissioner's discretion is a two-stage process. The Commissioner can only act if the failure to satisfy the requirements of Division 7A is the result of an honest mistake or an inadvertent omission. Once that has been established the Commissioner may disregard a dividend that Division 7A has deemed to exist. In deciding whether to disregard the deemed dividend, the Commissioner must consider certain factors specified in the legislation. Generally a decision by the Commissioner to disregard a deemed dividend will be made on the condition that specified corrective action is undertaken within a specified time.
This discretion was introduced as part of the 2007 amendments but applies from the 2001-02 year. There are two other discretions under Division 7A.
The first concerns cases where you have not made the minimum yearly repayment because of circumstances beyond your control and you would suffer undue hardship if the loan was treated as a dividend - for more information, refer to the fact sheet. Division 7A - loans by private companies.
The second concerns cases where the shareholder (or their associate) was unable to make the required minimum yearly repayment in an income year because of circumstances beyond their control - for more information, refer to the fact sheet Division 7A - Extended period for repayments of amalgamated loans.
In this fact sheet, a reference to a shareholder or their associate is also a reference to:
- an entity that has been a shareholder, or
- an entity that has been an associate of a shareholder.
Division 7A also applies to certain payments, loans, and debts forgiven by trustees to a shareholder or an associate of a shareholder of a private company where the company is presently entitled to an amount from the net income of the trust estate and the whole of that amount has not been paid by a specified date. For more information, refer to the fact sheet Division 7A - trust amounts treated as dividends - overview.
The Commissioner's discretion
Watch this video to learn about the Commissioner’s Discretion under Division 7A.