Tax Laws Amendment (2010 Measures No. 2) Act 2010 (75 of 2010)

Schedule 1   Distributions to entities connected with a private company

Income Tax Assessment Act 1936

13   After section 109C

Insert:

109CA Payment includes provision of asset

(1) In this Division, payment to an entity includes the provision of an asset for use by the entity.

Note: This includes provision under a lease or licence.

Example: Yacht builder Mainbrace Enterprises Pty Ltd owns a yacht for the purpose of sales demonstrations. With the private company's permission, one of its shareholders uses the yacht on weekends. The company has made a payment to the shareholder, unless one of the exceptions to subsection (1) applies.

(2) The time the payment is made is the time the entity first:

(a) uses the asset with the permission of the provider of the asset; or

(b) has a right to use the asset (whether alone or together with other entities), at a time when the provider of the asset does not have a right:

(i) to use the asset; or

(ii) to provide the asset for use by another entity.

Example: Paragraph (a) could apply if a shareholder were driving a company car with the company's permission. Paragraph (b) could apply if the shareholder had the car parked at his or her house or at another place of his or her choosing.

(3) However, if the use or right continues into another income year of the entity, treat the provision of the asset for use in the other income year as being a separate payment made at the start of that year.

Exceptions

(4) Subsection (1) does not apply if the provision of the asset would, if done in respect of the employment of an employee, be a minor benefit under section 58P of the Fringe Benefits Tax Assessment Act 1986.

(5) Subsection (1) does not apply to the extent that, if the entity had incurred and paid expenditure in respect of the provision of the asset, a once-only deduction would have been allowable to the entity in respect of the expenditure, ignoring:

(a) section 82A (Deductions for expenses of self-education); and

(b) Divisions 28 (Car expenses) and 900 (Substantiation rules) of the Income Tax Assessment Act 1997.

(6) Subsection (1) does not apply to the provision of a dwelling, if:

(a) the entity, or an associate of the entity, carries on a business; and

(b) the entity or associate:

(i) uses; or

(ii) is granted or has a lease, licence or other right to use;

land, water or a building for the purpose of carrying on the business; and

(c) the provision of the dwelling to the entity is connected with that use or with that lease, licence or other right.

Note: For the meaning of land , see paragraph 22(1)(c) of the Acts Interpretation Act 1901.

(7) Subsection (1) does not apply to the provision of a dwelling, if:

(a) the dwelling is the main residence of the entity; and

(b) the provider of the dwelling is a private company; and

(c) the private company acquired the dwelling before 1 July 2009; and

(d) the private company would meet the conditions in section 165-12 of the Income Tax Assessment Act 1997 (which is about the company maintaining the same owners) if, despite subsection 165-12(1), the ownership test period were the period:

(i) starting when the company acquired the dwelling; and

(ii) ending at the time of payment, worked out under subsection (2) of this section.

(7A) Subsection (1) does not apply to the provision of a dwelling to the entity if:

(a) the dwelling is a flat or home unit that is part of a complex of 2 or more flats or home units; and

(b) the provider of the dwelling is a company that owns a legal or equitable interest in the land on which the complex is erected; and

(c) there is more than one share in the company, and each share (whether singly or as part of a parcel of shares) gives the relevant shareholder the right to occupy a flat or home unit in the complex; and

(d) each flat or home unit in the complex is covered by a share, or a parcel of shares, in the company; and

(e) the dwelling is provided to the entity because a shareholder holds such a share, or parcel of shares; and

(f) the company does not have legal or equitable interests in any assets other than legal or equitable interests in:

(i) the complex, and the land on which it is erected; and

(ii) any related land and buildings; and

(iii) any related plant, machinery, equipment, furniture or fittings; and

(iv) any assets relating to the matters mentioned in paragraph (g); and

(g) the assessable income of the company is derived predominantly from:

(i) managing and maintaining the complex (including the assets mentioned in subparagraphs (f)(i), (ii) and (iii)); and

(ii) interest and dividends relating to income derived from managing and maintaining the complex (including the assets mentioned in those subparagraphs).

(7B) Subsection (7A) does not apply in a case to which Subdivision E (about interposed entities) applies, if the company mentioned in that subsection is interposed between:

(a) a private company; and

(b) a shareholder, or an associate of a shareholder, of the private company.

(8) Section 118-120 of the Income Tax Assessment Act 1997 (Extension to adjacent land) applies in relation to subsections (6) to (7A) of this section in the same way as it applies in relation to Subdivision 118-B of that Act.

(9) Subsection (1) does not apply if the provision of the asset to the entity is a transfer of property to the entity.

Note: For transfers of property, see paragraph 109C(3)(c).

Value of payment

(10) Subject to subsection (11), the amount of the payment is:

(a) the amount that would have been paid for the provision of the asset by the parties dealing at arm's length; less

(b) any consideration given for the provision of the asset by the entity.

(11) The amount of the payment is nil if the consideration given by the entity equals or exceeds the amount that would have been paid at arm's length for the provision of the asset.