• When can a private company be taken to be presently entitled to the net income of a trust estate?

    For either a payment, loan or debt forgiven by a trustee to a shareholder or an associate of a shareholder to be treated as if it were a dividend, it is necessary for the private company to be, or become, presently entitled to an amount from the net income of the trust.

    From 1 July 2009 the interposed entity rules mean the private company will be treated or deemed for the purposes of Division 7A as having a present entitlement to an amount of the net income of the target trust where:

    • one or more trusts is interposed between the private company and the target trust
    • the company is or becomes presently entitled to an amount from the net income of an interposed trust (the first interposed trust)
    • a reasonable person would conclude that the private company is, or becomes entitled to an amount from the net income of the interposed trust, solely or mainly as part of an arrangement involving an entitlement to an amount from the target trust.

    It does not matter:

    • whether the company became or becomes entitled to the amount from the net income of the first interposed trust before, after or at the same time as the interposed trust became or becomes presently entitled to an amount from the net income of the target trust
    • whether or not the company became presently entitled to the same amount as the amount to which an interposed trust became entitled.
      Last modified: 15 Jul 2010QC 23183