• Division 7A - unpaid present entitlement

    This information discusses the application of Division 7A of Part III of the Income Tax Assessment Act 1936 (Division 7A) to an unpaid present entitlement (UPE) of a private company beneficiary to trust income, in situations where the trust and private company are related entities ultimately sharing the same directing mind and will. A UPE is an amount of trust income which the trustee of a trust appoints, but does not pay, to a private company beneficiary.

     

    Further Information

    Taxation Ruling TR 2010/3: Income tax: Division 7A loans: trust entitlements and Law Administration Practice Statement PS LA 2010/4: Division 7A: trust entitlements outline the Commissioner's view and administrative practice on the application of Division 7A, in particular, Section 109D of the Income Tax Assessment Act 1936 to a UPE.

    End of further information

    This document addresses certain supplementary issues relating to these rulings. As such, this should be read in conjunction with TR 2010/3 and PS LA 2010/4, and does not alter the Commissioner's view as set out in those publications.

    All references to legislation are to provisions in the Income Tax Assessment Act 1936 unless otherwise stated. All references to an entity's lodgment day are to the earlier of the entity's due date for lodgment of its tax return and the date that return was actually lodged.

    Introduction

    UPE may be a loan

    The Commissioner's view, expressed in TR 2010/3, is that a UPE is capable of amounting to the provision of financial accommodation by the private company beneficiary in favour of the trust, and may therefore be a loan for Division 7A purposes. The view expressed applies to all types of trusts, including discretionary trusts and unit trusts. The view expressed is particularly relevant in cases where the trust and the private company are part of the same family group.

    As the Commissioner first expressed his view on 16 December 2009, the Commissioner will only apply this view to UPEs which come into existence on or after this date.

      Last modified: 22 Jun 2011QC 24445