Where a UPE of a private company exists and it is not a loan for Division 7A purposes, any benefits the trustee provides to shareholders of the private company or their associates may be assessable dividends under Subdivision EA (of Division 7A).
Subdivision EA operates to treat a trust as a nominal private company with certain modifications. The effect is that any payments, loans, repayments or debts forgiven by the trust to a shareholder of the private company or their associate may be treated as being made by the company, and can be assessable as dividends.
Amounts from a trust will be treated as a dividend paid to a shareholder of a private company or their associate if both the following apply:
- as at the lodgment day of the trust return for the year, the trust has an amount of UPE owing to a private company beneficiary (this also applies to the UPEs that are placed on sub-trust investment agreements)
- during the income year, the trustee provided a benefit to a shareholder of the private company or their associate.
A deemed dividend can arise even where the arrangement involves a chain of UPEs through interposed trusts, or a chain of payments or loans through other entities.