Edited version of your private ruling

Authorisation Number: 1012439142268

Ruling

Subject: Income - Div 7A

Question and answer

Are you liable, under Division 7A, for funds withdrawn from a private company by your spouse?

No.

This ruling applies for the following periods

1 July 2011 to 30 June 2012

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You were married to your spouse for over 20 years.

You are a director of the company.

Your spouse was a director and shareholder of the company.

You have never received a direct benefit as a director of the company and have not been entitled to one.

Your spouse withdrew an amount from the company bank account and deposited the money into a personal bank account.

Your spouse withdrew a further sum of money from the company and deposited the money into a personal bank account. You are unable to advise the date of this transaction as the company has denied you access to any information.

On advice from the accountant your spouse, every year, withdrew funds from the company and paid the funds back within the year from the dividend they received from the company.

Due to a lack of documentation you are unable to determine whether there is distribution surplus or not.

You do not have any documentation which indicates your spouse's intentions when withdrawing the funds from the company.

Your spouse used the funds to pay out mortgages on X rental properties held by both of you as joint tenants.

The loans on the rental properties were in both your names.

You were not aware of any of these transactions.

You had no access to the accounts of the company at any time.

Your spouse passed away.

You were informed of loans your spouse had with the company over the course of a meeting with your bank subsequent to your spouse's death.

Your spouse's Will states that the estate is to be split in equal shares between you and your spouse's children.

Due to friction amongst your spouse's family and yourself you were advised to resign as director of the company.

You resigned your directorship of the company.

No Division 7A loan was drawn up prior to your spouse's passing.

The company has requested you sign a Division 7A loan agreement for the sums your spouse withdrew.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 109D(1)

Income Tax Assessment Act 1936 Section 109E(1)

Reasons for decision

109D(1) of the Income Tax Assessment Act 1936 (ITAA 1936) states;

A private company is taken to pay a dividend to an entity at the end of one of the private company's years of income (the current year) if:

(a) the private company makes a loan to the entity during the current year;..

[emphasis added}

Subsection 109E(1) of the ITAA 1936 states:

A private company is taken to pay a dividend to an entity at the end of one of the private company's year of income (the "current year") if:

(i) the private company made an amalgamated loan to the entity in an earlier year of income...

The entity to whom the private company is taken to have paid the dividend must be the same entity to whom the private company made the amalgamated loan.

Application to your circumstances

Your spouse withdrew funds from the company; a transaction which occurred solely between the private company and your spouse (the entity).

Consequently you are not liable for the funds withdrawn from the company by your spouse.