• When is a payment or loan through an interposed entity treated as a dividend?

    The interposed entity rules apply to payments made and loans made on or after 1 July 2009.

    The trustee is deemed to make a payment or a loan to a target entity where:

    • the trustee makes a payment or loan to an interposed entity (the first interposed entity)
    • a reasonable person would conclude that the trustee made the payment or loan solely or mainly as part of an arrangement to make a payment or loan to the target entity
    • the first interposed entity or another interposed entity makes a payment or loan to the target entity.

    If the trustee is taken to have made a payment or loan to the target entity then Subdivision EA applies to the deemed payment or notional loan (refer to the fact sheets Division 7A - trust amounts treated as dividends - payments and Division 7A - trust amounts treated as dividends - loans).

    Assuming the conditions under Subdivision EA for payments or loans are met, the arrangements are shown below.

    Subdivision EA payments or loans flowchart.

    Subdivision EA operates as if the trustee had paid an amount or made a loan directly to the target entity.

      Last modified: 15 Jul 2010QC 23183