ATO Interpretative Decision
ATO ID 2003/839
Income Tax
Deemed dividend: Loan to another company in its capacity as trustee of a unit trust - loan provider owns all units in the trust - application of section 109KFOI status: may be released
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This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is a loan excluded under section 109K of the Income Tax Assessment Act 1936 (ITAA 1936) from being taken to be a dividend under section 109D of the ITAA 1936 where a company, in it's capacity as trustee of a unit trust, receives the loan from a private company which owns all of the units in the trust?
Decision
No. A loan is not excluded under 109K of the ITAA 1936 from being taken to be a dividend under section 109D of the ITAA 1936 where a company, in it's capacity as trustee of a unit trust, receives the loan from a private company which owns all of the units in the trust.
Facts
Company X and Y are private companies.
Company X owns all of the shares in Company Y. Company Y is the trustee of the Z Unit Trust.
All of the shares in Company X are owned equally by two natural persons.
Company X owns all of the units in the Z Unit Trust.
Company X, Company Y and the Z Unit Trust are not part of a consolidated group.
Company X makes a loan to Company Y as trustee for the Z Unit Trust on 10 April 2003. The loan was not repaid by 30 June 2003. The loan was not made under a written agreement.
Reasons for Decision
Subsection 109D(1) of the ITAA 1936 provides that a private company is taken to pay a dividend to a shareholder or their associate at the end of the private company's year of income if the private company makes a loan to the shareholder or their associate during the year which is not fully repaid by the end of the year, and Subdivision D of Division 7A of the ITAA 1936 does not apply.
The shareholders of Company X are two natural persons. Under paragraph 318(1)(d) of the ITAA 1936, the associates of a natural person include the trustee of a trust where the individual, or an associate of the individual, benefits under the trust. Under subsection 318(6) of the ITAA 1936, a reference to an entity benefiting under a trust means that the entity has benefited or is capable of benefiting under the trust, either directly or through interposed companies, partnerships or trusts. Company X owns all of the units in the Z Unit Trust and the natural persons own all the shares in Company X. Therefore the natural persons are capable of benefiting under the trust indirectly through Company X. Therefore, Company Y, as trustee of the Z Unit Trust, is an associate of the natural persons.
Subdivision D of Division 7A of the ITAA 1936 sets out loans that are not treated as dividends. Under section 109K of the ITAA 1936, a private company is not taken to pay a dividend under section 109D of the ITAA 1936 because of a loan it makes to another company. The note to section 109K of the ITAA 1936 states that this exclusion does not apply to a loan to a company in its capacity as trustee and refers to section 109ZE of the ITAA 1936.
Section 109ZE of the ITAA 1936 states that the rules in section 960-100 of the ITAA 1997 about entities, apply to Division 7A of the ITAA 1936. Subsection 960-100(3) of the ITAA 1997 states that a legal person can have a number of different capacities in which they do things, and in each of those capacities, the person is taken to be a different entity. Subsection 960-100(4) of the ITAA 1997 provides that if a provision refers to an entity of a particular kind, it refers to that entity in its capacity as that kind of entity, not to that entity in any other capacity. For example, a provision that refers to a company does not cover a company in its capacity as trustee, unless it also refers to a trustee.
Section 109K of the ITAA 1936 applies only to a company in its capacity as a company and not in its capacity as trustee. Company X makes the loan to Y as trustee. Therefore, section 109K of the ITAA 1936 will not apply to exclude the loan from being taken to be a dividend.
Accordingly, Company X may be taken under section 109D of the ITAA 1936 to pay a dividend to Company Y as trustee of the Z Unit Trust on 30 June 2003.
Amendment History
| Date of Amendment | Part | Comment |
|---|---|---|
| 30 November 2016 | Legislative References | Add "section 109D" under Income Tax Assessment Act 1936.
Change "subsection 318(1)" to "paragraph 318(1)(d)" under Income Tax Assessment Act 1936. Add "Subdivision D of Division 7A" under Income Tax Assessment Act 1936. |
| Reasons for Decision | Insert "of Division 7A" in paragraph 3.
Delete "of Subdivision D" in paragraph 3. |
|
| Date reviewed | Change from "3 April 2014" to "22 November 2016". |
Year of income: Year ended 30 June 2003
Legislative References:
Income Tax Assessment Act 1936
section 109D
subsection 109D(1)
section 109K
section 109ZE
paragraph 318(1)(d)
subsection 318(6)
Subdivision D of Division 7A
section 960-100
subsection 960-100(3)
subsection 960-100(4) Related ATO Interpretative Decisions
ATO ID 2003/838
ATO ID 2003/840
Keywords
Associate
Companies
Deemed dividends
Shareholder loans
Date reviewed: 22 November 2016
ISSN: 1445-2782
| Date: | Version: | |
| 29 August 2003 | Original statement | |
| You are here | 30 November 2016 | Updated statement |