Edited version of private advice

Authorisation Number: 1052170945923

Date of advice: 25 September 2023

Ruling

Subject: Tax integrity measures

All references legislative references are to the Income Tax Assessment Act 1936, unless otherwise indicated.

Question 1

Are any of the amounts (or part or parts thereof) paid by Company B to partly repay a loan from Person X and Person Y (the taxpayers) during the years of income ended 30 June 20xx to 30 June 20xx inclusive, deemed dividends under section 109C or 109D of Division 7A of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

No.

Question 2

Are any of the amounts (or part or parts thereof) paid by Company B to the taxpayers during the years of income ended 30 June 20xx to 30 June 20xx inclusive, deemed under Subdivision E of Division 7A to be payments made by Company A to the taxpayers?

Answer

No.

This ruling applies for the following periods:

1 July 20xx to 30 June 20xx

The scheme commenced on:

1 July 2020

Relevant facts and circumstances

Company A

1.    Person X, and their siblings, Person A, Person B and Person C each have a 25% legal and beneficial interest in the private company Company A.

2.    Company A conducted several businesses. Following the sale of some of its businesses, Company A invested the sale proceeds in a conservatively structured portfolio of equities and property.

3.    For many years Company A paid substantial dividends to its shareholders each year.

Sale of Business and Commercial Property

4.    Person X and their siblings benefited from sale of a business and a commercial property. The business was held by the siblings in their own names while the commercial property was held in a unit trust for their benefit.

5.    Following the sale of these assets, Person X and their siblings received sufficient funds such that it has not been necessary in recent years for Company A to declare dividends to them on a joint basis.

Investment strategy of Company A

6.    As a result of reduced need for Company A to declare dividends to its shareholders, the company pursued its long-term investment strategy for the after-tax proceeds of the sale of its businesses.

7.    A funds management team was employed by Company A to protect and build the company's assets with a view to providing a heritage for future generations.

8.    Being mindful of the intergenerational objectives of Company A, the directors of Company A have instructed the company's funds management team to develop an investment strategy that gave a priority to protecting the company's assets.

9.    Because of this policy, in the period during which Australian's economy (and other world economies) were experiencing difficulties arising from Covid-19 encouraged economic lockdowns, Company A's funds management team exited high risk investments and built cash balances.

Company B

10.  Person X has approximately 80% legal and beneficial interest in Company B. The other 20% ownership of the company is held by their spouse Person Y.

11.  Company B's investment portfolio consists of investments quoted in US currency (USD). To facilitate and manage these investments, Company B holds a USD denominated trading account.

Loans from the taxpayers to Company B

12.  Person X used some of their portion of the after-tax proceeds from the sale of the business and the commercial property to attend to their his family's longer term estate planning with some of the excess being transferred to Company B via loans. At the time of the purchase of the Apartment (discussed in paragraphs 14 to 17, below), the balance of the loan owing from Company B to the taxpayers was approximately $XX million.

13.  No documented loan agreements exist between Person X and Company B or between Person Y and Company B. The loans between the taxpayers and Company B are interest-free, unsecured and repayable on demand.

Purchase of an apartment (the Apartment) and associated loans

14.  In 20xx, Person X purchased (in his personal capacity) the Apartment for $USDX,X00,000.

Loan from third party financier to Company B:

15.  As Person X did not personally have sufficient funds to purchase the Apartment, they sought financing from a third-party financier. The third-party financier did not approve a loan in Person X's name but instead provided a $USDX,000,000 loan to Company B for the purchase. Rather than Person X seeking a loan from Company B to allow him to purchase the Apartment, the $USDX,000,000 borrowed by Company B was used to purchase the Apartment and a corresponding reduction was applied against the balance of the outstanding loan owing from the company to the taxpayers.

16.  The remaining $USDX00,000 of the purchase price, transfer and administration fees was funded by Company B and again applied against the outstanding amounts owed by Company B as partial repayment of the pre-existing loans made by the taxpayers.

17.  It is anticipated the future sale of the Apartment will be conducted in US currency. In order to self-hedge any exchange risk of potential sale of the Apartment, the loan for its purchase was entered into in US dollars.

Loan from Company C to Company B:

18.  In late 20xx, the third-party financier advised Company B that it could no longer provide Company B with funding in USD. Person X sought alternative funding in their name or that of Company B but was unsuccessful.

19.  Company B applied to Company C, a subsidiary of Company A, that has made a functional currency election to operate in USD, for a replacement loan in USD. Company B borrowed $USDX,000,000 from Company C and repaid the third-party loan facility in March 20xx.

20.  The interest and annual operating expenses of the Apartment have been incurred in USD and paid from Company B's USD trading account. When there were insufficient funds in that account, those expenses were funded by Company C or Company A, and reimbursed out of Company B's AUD account.[1] All transactions between Company A and Company B are conducted strictly on arm's length terms.

21.  The interest on the loan from Company C, and also previously from the bank, is expensed and deducted by Company B.

22.  The ongoing operating costs of the Apartment, whilst paid by Company B, have been applied to partially repay the loans from the taxpayers.

$XX million loan facility provided by Company A (as lender) to Company B (as borrower)

23.  Over time, Company A's shareholders approached the directors of the company to request access to some of the profits retained in the company to independently seek investments with a higher risk profile, but which promised higher returns for accepting that higher risk. The directors of Company A agreed to this request.

24.  Each of the shareholders has a separate private company that they and their immediate families control for the purpose of building their own family's wealth independently from their siblings. Company A granted each of these four separate private companies a $XX million loan facility to be drawn at times and amounts at the options of each company independently of each other.

25.  Relevant to the taxpayers, in June 20xx, Company B (as borrower) entered into a $XXmillion loan facility with Company A (as lender). The loan facility is unsecured but subject to a rate of interest set at a rate beneficial to Company A when compared to the rate Company A could achieve on cash holdings (including term deposits). The rate being roughly the midpoint between arm's length borrowing rates and arm's length deposit rates. Initially this rate was X.XX% for the year ended 30 June 2021.

Amounts paid/received by Company B to/from the taxpayers

26.  During the year ended 30 June 20xx, the taxpayers made payments to and drew money from Company B.

27.  During the year of income ended 30 June 20xx, Company B drew down $X million of its $XX million loan facility with Company A and then repaid $X million to the taxpayers as a part repayment of the amounts owing to them. The draw down by Company B from Company A allowed Company B to meet the request from the taxpayers to reduce the amounts owing to them without the liquidation of some of Company B's investments that Company B wished to retain.

28.  Company B is of the view that this drawdown was consistent with and met the stated purpose of the loan facility, that purpose being to allow Company B to invest in investments with a higher risk/reward profile. The drawdown allowed Company B to retain its existing investments as opposed to undertaking new investment was consistent with the purpose of the loan facility.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 103A

Income Tax Assessment Act 1936 Section 109C

Income Tax Assessment Act 1936 Section 109D

Income Tax Assessment Act 1936 Section 109J

Income Tax Assessment Act 1936 Section 109K

Income Tax Assessment Act 1936 Section 109T

Income Tax Assessment Act 1936 Section 109V

Income Tax Assessment Act 1936 Subsection 109V(1)

Income Tax Assessment Act 1936 Subsection 109V(2)

Income Tax Assessment Act 1936 Subsection 109W

Income Tax Assessment Act 1936 Section 109X

Income Tax Assessment Act 1936 Subsection 318(1)

Income Tax Assessment Act 1997 Section 960-100

Does Part IVA apply to this private ruling?

Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement.

If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax.

We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA, go to our website ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select 'Part IVA: the general anti-avoidance rule for income tax'.

Reasons for decision

All references legislative references are to the Income Tax Assessment Act 1936, unless otherwise indicated.

Question 1

Are any of the amounts (or part or parts thereof) paid by Company B to partly repay a loan from the taxpayers during the years of income ended 30 June 20xx to 30 June 20xx inclusive, deemed dividends under section 109C or 109D of Division 7A of the ITAA 1936?

Summary

No amount will be deemed to be a payment by Company B to the taxpayers under section 109C or 109D.

Detailed reasoning

1.    Broadly, Division 7A (Division 7A) is an integrity measure aimed at ensuring that profits of a private company are not effectively received by its shareholders in non-dividend form. The general provisions of Division 7A apply to treat amounts paid, lent, or debts forgiven, by a private company to a shareholder of a private company, or an associate of such a shareholder, as unfranked dividends, unless they come within specified exclusions.

Definition of a 'private company'

2.    A private company is defined in subsection 103A(1) as a 'company [that] is not a public company in relation to the year of income.' According to subsection 103A(2), a public company includes:

•        a company whose shares were listed for quotation on a stock exchange at the last day of the income year

•        a co-operative company, mutual life assurance company or friendly society dispensary

•        a company that has not been carried on for the purpose of profit or gain to its members and was prohibited by its constitution from making a distribution to its members

•        a government body or a company controlled by a government body, and

•        a subsidiary of a public company.

3.    As Company A does not satisfy the criteria of a public company, it is a private company in accordance with subsection 103A(1).

Definition of 'associate'

4.    For the purposes of Division 7A, section 109ZD defines associate to have the meaning given by section 318.

5.    Subsection 318(1) provides that an associate of a natural person includes:

•         your relatives;

•         a partnership that you are a partner in;

•         a trustee of a trust that you, or your associate, are a beneficiary of; or

•         a company that you, or your associate, control or influence.

Payments, loans and debt forgiveness treated as dividends

6.    Section 109C provides that a private company is taken to pay a dividend to an entity if the private company pays an amount to the entity during the year and the entity is a shareholder in the private company (or an associate of the shareholder) or it is reasonable to conclude that the payment is made because the entity was a shareholder or associate at some time.

7.    Subsection 109C(3) provides that a payment to an entity is:

(a)  a payment to the extent that it is to the entity, on behalf of the entity or for the benefit of the entity; and

(b)  a credit of an amount to the extent that it is:

(i)    to the entity; or

(ii)   on behalf of the entity; or

(iii) for the benefit of the entity; and

(c)   a transfer of property to the entity.

8.    Section 109D provides that a private company is taken to pay a dividend to an entity if the private company loans an amount to the entity during the year that is not fully repaid before lodgement date and the entity is a shareholder in the private company (or an associate of the shareholder) or it is reasonable to conclude that the payment is made because the entity was a shareholder or associate at some time.

9.    Subsection 109D(3) provides that a 'loan' to an entity is:

(a)      an advance of money; and

(b)      a provision of credit or any other form of financial accommodation; and

(c)       a payment of an amount for, on account of, on behalf of or at the request of, an entity, if there is an express or implied obligation to repay the amount; and

(d)      a transaction (whatever its terms or form) which in substance effects a loan of money.

Payments and loans that are not treated as dividends

10.  Subdivision D of Division 7A sets out the circumstances when loans and payments made by a private company are not treated as deemed dividends. One such exclusion is section 109K, which provides that a private company is not taken to pay a dividend under sections 109C or 109D because of a loan it makes to another company.

11.  Section 109J further provides that where a payment discharges an obligation of the private company to pay money to an entity, and the payment is not more than would have been required to discharge the obligation had the private company and entity been dealing with each other at arm's length, a deemed dividend would not arise under section 109C.

Application to your circumstances

12.  As the payments to the taxpayers from Company B are repayments of funds previously loaned to Company B by the taxpayers, section 109C and 109D will not apply to deem a dividend to be paid by Company B to the taxpayers.

Question 2

Are any of the amounts (or part or parts thereof) paid by Company B to the taxpayers during the years of income ended 30 June 20xx to 30 June 20xx inclusive, deemed under Subdivision E of Division 7A to be payments made by Company A to the taxpayers?

Summary

No amount will be deemed under section 109T to be a payment by Company A to the taxpayers.

Detailed reasoning

Payments and loans through interposed entities

13.  Where the private company provides a loan or payment to another entity (an interposed entity), such as a company, and that loan or payment is used by the interposed entity to make a payment or loan to a shareholder of the private company (the target entity) the interposed entity rules contained in Subdivision E of Division 7A (sections 109T to 109X) could apply. In this circumstance, the interposed entity provisions broadly provide that the private company may be taken to have paid a dividend, pursuant to Subdivision B, to the target entity such that this dividend is to be included in the assessable income of the shareholder under section 44.

Meaning of the term 'entity'

14.  Section 109ZD provides that the meaning of 'entity' is that pursuant to section 960-100 of the Income Tax Assessment Act 1997 (ITAA 1997). Section 960-100 of the ITAA 1997 states that an entity includes an individual, a body corporate, a body politic, a partnership, any other unincorporated association or body of persons, a trust, a superannuation fund or an approved deposit fund.

Payments or Loans through Interposed Entities - Section 109T

15.  Subsection 109T(1) provides that a private company is taken to have made a payment or loan to a target entity for the purposes of Division 7A if:

(a)       the private company makes a payment or loan to an entity (the first interposed entity)

(b)       a reasonable person would conclude that the private company made the payment or loan solely or mainly as part of an arrangement involving a payment or loan to a target entity, and

(c)              either:

(i)        the interposed entity then makes a payment or loan to the target entity, or

(ii)       another entity interposed between the private company and the target entity makes a payment or loan to the target entity.

16.  Guidance on the Commissioner's application of paragraph 109T(1)(b) is found in Taxation Determination TD 2011/16: Income Tax: Division 7A - payments and loans through interposed entities - factors the Commissioner will tax into account in determining the amount of any deemed payment or notional loan arising under section 109T of the Income Tax Assessment Act 1936 (TD 2011/16).

17.  Paragraph 34 of TD 2011/16 explains that all that is required to satisfy paragraph 109T(1)(b) is for a reasonable person to conclude that the payment or loan from the private company to the interposed entity was part of an arrangement involving a payment or loan to the target entity (a back-to-back arrangement). It further states that although there is no requirement to demonstrate that a purpose of the arrangement was to avoid Division 7A, 'such a purpose or intent may help establish such a reasonable conclusion'.

18.  Tax Determination TD 2018/13 Income tax: Division 7A: can section 109T of the Income Tax Assessment Act 1936 apply to a payment or loan made by a private company to another entity (the 'first interposed entity') where that payment or loan is an ordinary commercial transaction? (TD 2018/13) states the following:

66. In particular, subsection 109T(1) provides that a private company will be taken to make a payment or loan to the target entity where a reasonable person would conclude (having regard to all the circumstances) that the private company made the payment or loan to the first interposed entity, solely or mainly, as part of an arrangement involving a payment or loan through one or more interposed entities to the target entity.

67. If the outcome of the arrangement is that the target entity would effectively receive a tax-free distribution from the private company (but for the application of Subdivision E of Division 7A), the arrangement properly falls for consideration under Subdivision E of Division 7A (subject to the exclusion in subsection 109T(3)). This would be so regardless of the intention of the parties to the arrangement, given the intended purpose of Division 7A⁶.

19.  In addition, footnote 6 of paragraph 67 of TD 2018/13 states

⁶ The Commissioner does not consider that the distribution has to be tax-free, or entirely tax-free, for the reasonable person test to be satisfied but being tax-free strongly supports the relevant conclusion being drawn.

20.  The fact that the payment or loan may be considered to be an ordinary commercial transaction does not, of itself, exclude the operation of section 109T, refer paragraph 69 of TD 2018/13.

21.  Where section 109T operates to treat a private company as having made a payment or loan to a shareholder, in determining the amount of that deemed payment or notional loan under section 109V or 109W, the Commissioner will take into account relevant factors occurring before the earlier of the due date for lodgment and the date of lodgment of the private company's return for the income year in which the company is taken to have made the deemed payment or notional loan.

22.  Where the interposed entity rules in Subdivision E of Division 7A apply, section 109X ignores the operation of 109K so that a deemed dividend is taken to arise under 109C as if the company has made a payment to the shareholder.

23.  Where Subdivision E of Division 7A deems a payment to be a dividend, section 109J cannot apply in respect of a notional payment or loan that arises as the result of the application of the interposed entity provisions, refer paragraph 27 of Tax Determination TD 2012/12 Income tax: Division 7A: do the rules in Subdivision D of Division 7A of Part III of the Income Tax Assessment Act 1936 which exclude certain payments or loans from being treated as dividends under Subdivision B of Division 7A of that Act necessarily affect the circumstances in which a deemed payment or notional loan arises under Subdivision E of Division 7A of that Act? (TD 2012/2).

Section 109T - Application to your circumstances

Loan Facility from Company A to Company B

24.  As the loan facility is provided by Company A, a private company in accordance with section 103A, to Company B, its shareholders' associated company, prima facie section 109K would apply, so that no deemed dividends arise under section 109D in relation to these loans. However, as the loan facility funds borrowed by Company B (the interposed entity) would then be paid to Person X (the target entity), a shareholder of Company A and treated as repayments of the loans outstanding from Company A to the taxpayer, consideration of the interposed entity provisions in Subdivision E of Division 7A is necessary.

25.  As Person Y is the spouse of Person X, they are an associate of a shareholder of Company A pursuant to section 318. As such, any payment from Company B to them could also be subject to Subdivision E of Division 7A.

26.  As discussed above, where Subdivision E of Division 7A (sections 109T, 109V and 109X) applies so that Company B is deemed to make the payment to the taxpayer, section 109J would not apply to the repayment to avoid the operation of section 109C.

27.  In this case, section 109T will apply given the funds lent to Company A have been applied by Company B to repay loans to the taxpayers, resulting in a tax-free distribution from Company A to the taxpayers. As discussed above, and in TD 2018/13 paragraphs 66-67, this has led the Commissioner to conclude (having regard to all the circumstances) that Company B made the respective loan facilities available to the shareholders' private companies, solely or mainly as part of an arrangement involving a payment from the shareholders' private companies to the shareholder.

28.  As discussed above for 109T(1) to apply, per TD 2018/13 the intention of the arrangement is not relevant, nor is a purpose or intention to avoid Division 7A required per paragraph TD 2011/16. All that is required to satisfy paragraph 109T(1)(b) is for a reasonable person to conclude that the payment or loan from the private company to the interposed entity was part of an arrangement involving a payment or loan to the target entity (a back-to-back arrangement)

29.  Therefore, 109T is likely to apply where the loan facility funds provided by Company A have been used by Company B to repay loans outstanding to the taxpayer.

30.  In the event 109T has application, 109V will need to be considered to determine the deemed payment amount.

Company C $X million loan and property operating costs

31.  In late 2018, or early 2019, Company B obtained a $X million loan from Company C to replace the third-party loan obtained for the purchase of the Apartment by Person X (the target entity).

32.  As Company C is a subsidiary of Company A and Person X is a shareholder of Company A, Company C is 'another entity interposed between the private company and the target entity' such that subparagraph 109T(1)(c)(ii) applies.

33.  Prima facie section 109K would apply, so that no deemed dividends would arise under section 109D in relation to the loans between Company C, a subsidiary of Company A, and Company B.

34.  In this case, the $USD 8 million loan from Company C to Company B has been used by Company B to repay the bank. The $USD 8 million has not been on-paid to the taxpayers.

35.  As the $USD 8 million loan from Company C to Company B has not been on-paid to the taxpayers, 109T does not apply in this instance.

36.  However, where the Apartment operating costs have been paid by Company C and/or Company A and then reimbursed by Company B, with the amounts then treated as repayments of the loans outstanding from Company B to the taxpayer consideration of the interposed entity provisions in Subdivision E of Division 7A would be necessary.

37.  As Person Y is the spouse of Person X, they are an associate of a shareholder of Company A pursuant to section 318. As such, any payment from Company B to her could also be subject to Subdivision E of Division 7A.

38.  As discussed above, where Subdivision E of Division 7A (sections 109T, 109V and 109X) applies so that Company A is deemed to make the payment to the taxpayer, section 109J would not apply to the repayment to avoid the operation of section 109C.

39.  Section 109T will apply where the property's operating costs have been paid for by Company A or by Company C and charged to Company B, and then Company B has applied these amounts to repay loans to the taxpayers, resulting in a tax-free distribution from Company A/Company C to the taxpayers. As discussed above and in TD 2018/13 paragraphs 66-67, this has led the Commissioner to conclude (having regard to all the circumstances) that Company A and Company C have made the payment of property costs, solely or mainly as part of an arrangement involving a payment from Company A to the shareholder.

40.  As discussed above for 109T(1) to apply, per TD 2018/13 the intention of the arrangement is not relevant, nor is a purpose or intention to avoid Division 7A required per paragraph TD 2011/16. All that is required to satisfy paragraph 109T(1)(b) is for a reasonable person to conclude that the payment or loan from the private company to the interposed entity was part of an arrangement involving a payment or loan to the target entity (a back-to-back arrangement)

41.  Therefore, 109T will apply where the funds provided by Company C and/or Company A have been used by Company B to pay the Apartment operating costs on behalf of Person X.

42.  As 109T has application, 109V will need to be considered to determine the deemed payment amount.

Amount of private company's payment to the target entity through one or more interposed entities

43.  Subsection 109V(1) provides that if the target entity is paid an amount by the interposed entity, the Division operates as if the private company had paid the amount (if any) determined by the Commissioner to the target entity when the interposed entity paid the target entity.

44.  Subsection 109V(2) provides that in determining the amount of the payment the private company is taken to have made, the Commissioner must take account of:

(a)       the amount the interposed entity paid the target entity; and

(b)       how much (if any) of that amount the Commissioner believes represented consideration payable to the target entity by the private company or any of the interposed entities for anything (assuming that the consideration payable equals that for similar transactions at arm's length).

45.  Taxation Determination TD 2011/16 Income tax: Division 7A - payments and loans through interposed entities - factors the Commissioner will take into account in determining the amount of any deemed payment or notional loan arising under section 109T of the Income Tax Assessment Act 1936 (TD 2011/16) outlines the factors the Commissioner will consider at paragraph 2.

These factors are as follows:

(a)       the amount that an interposed entity referred to in subsection 109T(1) (an 'interposed entity') loaned or paid the target entity referred to in that subsection (target entity) under the arrangement described in that subsection (the arrangement);

(b)       how much (if any) of the amount loaned or paid to the target entity by an interposed entity under the arrangement the Commissioner believes represented arm's length consideration payable to the target entity by the private company or an interposed entity for anything (other than its right to receive repayment of the loan and any relevant interest);

(c)       the extent to which any actual loans made as part of the arrangement have been repaid by that time;

(d)       the extent to which any actual payments made as part of the arrangement were converted into loans pursuant to subsection 109D(4A) that have been repaid by that time;

(e)       the extent to which any loan made from the private company to an interposed entity as part of the arrangement meets the criteria set out in section 109N (that is, 'a section 109N compliant loan') at that time;

(f)        the extent to which any payment made from the private company to an interposed entity as part of the arrangement was converted, pursuant to subsection 109D(4A) into a section 109N compliant loan by that time;

(g)       the extent to which any actual loans made as part of the arrangement would be covered by section 109M (loans in the ordinary course of the private company's business made on its usual terms applicable to arm's length parties); and

(h)       the extent to which the above factors reflect genuine transactions that are not designed to avoid the application of Subdivision E otherwise than as envisaged within the scheme of Division 7A (such as making a section 109N compliant loan to an entity that has an intention and capacity to repay a loan [in respect of which to the extent expected at the time when the Commissioner is determining the amount of deemed payment or notional loan, appropriate minimum yearly repayments have been made] or genuinely and in substance repaying loans in a manner that would not attract section 109R if it applied).

46.  In addition to the relevant factors above, the Commissioner may, in appropriate cases, consider (having regard to the intended purpose of Division 7A) the extent to which tax is otherwise payable because of the structure used in the arrangement, see paragraph 81 of TD 2018/13.

Section 109V - Application to the case

Company A Loan Facility

47.  In determining the amount of the payment Company A may be taken to have made to the taxpayers under section 109V, the Commissioner will take into account the factors listed in paragraph 2 of TD 2011/16. Relevant to the taxpayers' circumstances is paragraph 2(c) of TD 2011/16, which states that the Commissioner will take into account to which any actual loans made as part of the arrangement have been repaid by that time.

48.  You explain that the payment of $4 million from Company B to the taxpayers is a repayment of loans made by the taxpayers (as lenders) to the company (as borrower).

49.  Consequently, where 100% of the payment made by Company B to the taxpayers represents a loan repayment, the amount determined under section 109V will be nil and no amount will be considered under Division 7A to be a deemed dividend under section 109C.

Company A / Company C payment of ongoing property amounts

50.  In determining the amount of the payment Company A may be taken to have made to the taxpayers under section 109V, the Commissioner will take into account the factors listed in paragraph 2 of TD 2011/16. Relevant to the taxpayers' circumstances is paragraph 2(c) of TD 2011/16, which states that the Commissioner will take into account to which any actual loans made as part of the arrangement have been repaid by that time.

51.  You explain that the payments of ongoing property costs are sometimes paid by Company A and/or Company C and reimbursed by Company B. Company B then on-charges these costs to the taxpayers as part of the repayment of loans made by the taxpayers (as lenders) to the company (as borrower).

52.  Consequently, where 100% of the payments made of ongoing property costs represent a loan repayment, the amount determined under section 109V will be nil and no amount will be considered under Division 7A to be a deemed dividend under section 109C.

[1] The USD amounts being converted to AUD using the applicable exchange rate on the date of the payment.