Draft Taxation Determination

TD 2000/D4

Income tax: Where a private company beneficiary of a trust estate is taken to have made a loan under section 109UB of the Income Tax Assessment Act 1936 because of a loan made by the trustee to a shareholder of the private company or shareholder's associate, are repayments made in relation to the trustee's loan taken into account in determining whether the private company is taken to have paid a dividend under section 109D?

• Please note that the PDF version is the authorised version of this draft ruling.
  This document has been finalised by TD 2004/63.

FOI status:

draft only - for comment

Preamble

1. No.

Application of section 109UB

2. Subsection 109UB(1) of the ITAA 1936 applies if:

*

a private company is, or has been, presently entitled to an amount from the net income of a trust estate;

*

the trustee has not paid the amount to the private company;

*

a loan is subsequently made by the trustee to a shareholder of the private company or an associate of such a shareholder.

3. In this situation, the private company is deemed to have made a loan to the shareholder or associate at the time the trustee made the loan.

4. The amount of this deemed loan is calculated using the formula in subsection 109UB(2). Under this formula, the amount of this deemed loan is the lesser of the following amounts:

*

the amount of the loan made by the trustee; and

*

the amount of the private company's unpaid present entitlement less any amounts previously treated as loans under section 109UB.

5. Subsequent repayments to the trustee of the actual loan are not taken into account in this formula. Any other payments on account of this loan made directly to the private company are also not taken into account.

Application of section 109D

6. Under section 109D of the ITAA 1936, a private company can be taken to pay a dividend to another entity which is either a shareholder in the private company or an associate of such a shareholder if:

*

the private company makes a loan to that other entity (paragraph 109D(1)(a));

*

the loan is not fully repaid by the end of the current year (paragraph 109D(1)(b)); and

*

none of the exclusions apply to prevent the private company from being taken to pay a dividend. (paragraph 109D(1)(c))

7. Where section 109UB applies, as explained above, the private company is deemed to make a loan and the condition in paragraph 109UB(1)(a) is satisfied. Because the loan for the purposes of section 109D is the deemed loan pursuant to section 109UB, rather than an actual or real loan, it is incapable of being repaid in fact and the condition in paragraph 109UB(1)(b) is necessarily satisfied. There is no provision under which the deemed loan can be deemed to be repaid.

Modified rules for arrangements involving trusts

8. Section 109UB reflects a statutory regime which modifies the point or event on which Division 7A of Part III of the ITAA 1936 applies in relation to certain arrangements between private companies and trusts. Instead of the unpaid present entitlement itself triggering the application of Division 7A, there can be no deemed dividend unless and until the trustee makes a loan to a shareholder of the private company or an associate of such a shareholder. Where the unpaid present entitlement is no longer retained by the trust, the arrangement ceases to qualify for this modification. 8.

Your comment

9. We invite you to comment on this Draft Taxation Determination. We are allowing 4 weeks for comments before we finalise the Determination. If you want your comments considered, please provide them to us within this period. 8. We invite you to comment on this Draft Taxation Determination. We are allowing 4 weeks for comments before we finalise the Determination. If you want your comments considered, please provide them to us within this period.

Commissioner of Taxation
29 March 2000

Not previously issued in draft form

References

ATO references:
NO T2000/005334

Subject References:
anti avoidance measures
deemed dividends
private company trust beneficiary

Legislative References:
109D
109UB