Income Tax Assessment Act 1936


Division 7A - Distributions to entities connected with a private company  

Subdivision E - Payments and loans through interposed entities  


109UA(1)   [Operation]  

Section 109T operates as if one entity (the first entity ) makes a payment to a second entity if the first entity guarantees a loan the second entity makes to a third entity (the target entity ) and, as a result of the guarantee, the first entity has a liability (other than a contingent liability) to make a payment to the second entity.


A private company guarantees a loan that a bank makes to a shareholder in the private company and the shareholder defaults on the loan. As a result, the company has a presently existing liability to make a payment to the bank. Section 109T operates as if the private company had made a payment to the bank, so the company is treated by section 109V as making a payment to the shareholder (because the bank is interposed between company and shareholder).

109UA(2)   [Reduction of payment]  

The amount of the payment (as worked out under section 109V ) is to be reduced by any amount treated as a dividend as a result of the operation of section 109U in relation to the payment or loan made by the interposed entity to the target entity.

109UA(3)   [Where dividend deemed not to be paid]  

A private company is not taken under this Division to pay a dividend because of the operation of subsection (1) in relation to a guarantee if the Commissioner is satisfied that:

(a) the target entity would suffer undue hardship if the private company were taken to pay a dividend to the entity because of the liability; and

(b) when the target entity entered into the loan, the entity had the capacity to pay the loan.

109UA(4)   [Section 109T operation]  

This section does not the limit the operation of section 109T .

109UA(5)   [ Application]  

Subsection (1) does not apply if:

(a) as a result of the first entity's liability mentioned in that subsection, the target entity has a liability (other than a contingent liability) to make a payment to the first entity; and

(b) because of section 109N , the liability to make a payment to the first entity is not treated under this Division as giving rise to a dividend paid to the first entity.

View surrounding sectionsView surrounding sectionsBack to top

This information is provided by CCH Australia Limited Link opens in new window. View the disclaimer and notice of copyright.