Unpaid Present Entitlements

A draft ruling was issued in December 2009 by the Commissioner of Taxation dealing specifically with unpaid present entitlements to companies. The ruling seeks to apply the existing Division 7A rules to amounts of income distributed by trusts to Corporate Beneficiaries that are not subsequently paid. In effect, any amounts not paid to the Company and not subject to a loan agreement meeting the requirements of Division 7A, would be treated as a deemed dividend.

This draft ruling is open for comment from interested parties until February of this year. As the ruling represents a significant change in the way in which these rules are applied in practice the industry bodies are to submit a combined response to the ruling. Once a final ruling has been issued, we will advise further on the impact this may have on your existing circumstances. In the meantime, it is relevant to consider alternative taxation strategies for the 2010 and future years where a Corporate beneficiary has been utilised in the past if the Trust does not have sufficient income to make the required repayments or to transfer the entitlements in full.