Self-corrective option: Commissioner's discretion under section 109RB (paragraph 34 of PS LA 2010/4)
Opportunity to rectify a Division 7A breach
You may apply in writing to the Commissioner to exercise his discretion under section 109RB to disregard a deemed dividend that has arisen under Division 7A.
The Commissioner has provided an additional concession to certain small business taxpayers. If you are able to satisfy all the conditions in paragraph 34 of PS LA 2010/4, you may self-assess whether it would be reasonable for an tax officer to conclude that the Commissioner's discretion in section 109RB should be exercised in your favour.
Taking corrective action - subparagraph 34(d) of PS LA 2010/4
The corrective action, as specified in subparagraph 34(d) and paragraph 35 of PS LA 2010/4 must be taken by you on or before 31 December 2011.
History of good tax compliance - subparagraph 34(f) of PS LA 2010/4
Considering whether you have a history of good tax compliance depends on your individual facts and circumstances. However, as a guide, if you have the following attributes, you will not be considered to have a history of good tax compliance:
- substantial amounts payable, income assessed or losses or deductions denied following an ATO review
- a previous finding of fraud or evasion
- repeated non-lodgment of prior year tax returns, business activity statement (BAS) or instalment activity statements, which may or may not have resulted in failure-to-lodge penalties. being imposed.
Rationale for the condition in subparagraph 34(g) of PS LA 2010/4
The self-corrective options in PS LA 2010/4 are available as a result of feedback that some small businesses may not have been aware that Division 7A can potentially apply to ordinary loans between a private company and a broadly associated trust.
The rationale for the condition in subparagraph 34(g) of PS LA 2010/4 is based on the premise that small businesses should have a basic understanding of the operation of Division 7A. That is, Division 7A applies to any payment, loan or debt forgiveness in favour of a shareholder or an associate of the shareholder of the private company. Accordingly, the small business should have been aware of the Division 7A consequences if the private company had provided an ordinary loan to the trustee of the trust, where the trustee of the trust is a shareholder.
Application to the Commissioner in writing to exercise his discretion
If you are unable to satisfy all the conditions listed in paragraph 34 of PS LA 2010/4, you may apply directly to the Commissioner in writing to ask that he exercise his discretion to disregard each deemed dividend that has occurred.
We understand that you may wish to have written confirmation from the Commissioner that the discretion under section 109RB is exercised. Accordingly, even if you have satisfied all of the conditions in paragraph 34 of PS LA 2010/4 you can still apply to the Commissioner to exercise his discretion under section 109RB.