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
25 After Subdivision EA of Division 7A of Part III
Insert:
Subdivision EB - Unpaid present entitlements - interposed entities
109XE Simplified outline of this Subdivision
The following is a simplified outline of this Subdivision:
Payments and loans
This Subdivision allows an amount to be included in an entity's (the target entity's ) assessable income under Subdivision EA if an entity interposed between a trustee and the target entity makes a payment or loan to the target entity under an arrangement involving the trustee.
This result is achieved by treating the trustee as making a payment or loan of an amount determined by the Commissioner to the target entity.
The arrangement must involve the trustee and one or more interposed entities in making payments or loans for the purpose of the target entity receiving a payment or loan from an interposed entity.
If the target entity repays a fraction of the loan made by the interposed entity, the target entity is treated as repaying the same fraction of the loan taken to have been made by the trustee.
Some provisions that prevent payments or loans from giving rise to assessable income do not apply to payments or loans this Subdivision treats a trustee as making.
Present entitlements
This Subdivision similarly allows an amount to be included in an entity's assessable income under Subdivision EA if a private company is or becomes presently entitled to an amount from the net income of a trust estate interposed between the private company and another trust estate (the target trust ) under an arrangement involving the target trust.
109XF Payments through interposed entities
(1) For the purposes of paragraphs 109XA(1)(a) and (1A)(a), a trustee is taken to have made a payment to a shareholder, or to an associate of a shareholder, (the target entity ) of a private company if:
(a) the trustee makes a payment or loan to another entity (the first interposed entity ) that is interposed between:
(i) the trustee; and
(ii) the target entity; and
(b) a reasonable person would conclude (having regard to all the circumstances) that the trustee made the payment or loan solely or mainly as part of an arrangement involving a payment to the target entity; and
(c) either:
(i) the first interposed entity makes a payment to the target entity; or
(ii) another entity interposed between the trustee and the target entity makes a payment to the target entity.
(2) For the purposes of this section, it does not matter:
(a) whether the interposed entity made the payment to the target entity before, after or at the same time as the first interposed entity received the payment or loan from the trustee; or
(b) whether or not the interposed entity paid the target entity the same amount as the trustee paid or lent the first interposed entity.
(3) Treat the reference in paragraph 109XA(1)(b) to a payment as being a reference to the payment to the target entity mentioned in paragraph (1)(c) of this section.
109XG Loans through interposed entities
Loans by a trustee through interposed entities
(1) For the purposes of paragraph 109XA(2)(a), a trustee is taken to have made a loan (the notional loan ) to a shareholder, or to an associate of a shareholder, (the target entity ) of a private company if:
(a) the trustee makes a payment or loan to another entity (the first interposed entity ) that is interposed between:
(i) the trustee; and
(ii) the target entity; and
(b) a reasonable person would conclude (having regard to all the circumstances) that the trustee made the payment or loan solely or mainly as part of an arrangement involving a loan to the target entity; and
(c) either:
(i) the first interposed entity makes a loan to the target entity; or
(ii) another entity interposed between the trustee and the target entity makes a loan to the target entity.
(2) For the purposes of this section, it does not matter:
(a) whether the interposed entity made the loan to the target entity before, after or at the same time as the first interposed entity received the payment or loan from the trustee; or
(b) whether or not the interposed entity lent the target entity the same amount as the trustee paid or lent the first interposed entity.
Notional loans
(3) When working out whether an amount is included in the assessable income of the target entity under section 109XB as a result of the notional loan under subsection (1) of this section, and the amount included in assessable income, assume that the target entity repays an amount of the notional loan equal to the amount worked out using the formula:
where:
amount actually lent to target entity is the amount the interposed entity lent to the target entity.
repayment made by target entity to lender is the amount of any repayment made by the target entity of the loan the interposed entity made to the target entity.
(4) For the purposes of section 109E (Amalgamated loan from a previous year treated as dividend if minimum repayment not made):
(a) treat the notional loan as an amalgamated loan from the private company to the target entity; and
(b) treat the amount of the notional loan worked out under section 109XH as the amount of the amalgamated loan; and
(c) treat the agreement under which the actual loan was made as the agreement under which the amalgamated loan was made; and
(d) treat repayments by the target entity of the amount of the notional loan worked out under subsection (3) of this section as payments by the target entity to the private company in relation to the amalgamated loan.
(5) For the purposes of section 109N (about certain loans not being treated as dividends), treat the agreement under which the actual loan was made as the agreement under which the notional loan was made.
109XH Amount and timing of payment or loan through interposed entities
Amount of payment or loan
(1) The amount the trustee is taken under section 109XF or 109XG to have paid or lent the target entity is the amount (if any) determined by the Commissioner.
(2) In determining the amount of the payment or loan, the Commissioner must take account of:
(a) the amount the interposed entity paid or lent the target entity; and
(b) how much (if any) of that amount the Commissioner believes represented consideration payable to the target entity by:
(i) the trustee; or
(ii) any of the interposed entities;
for anything (assuming that the consideration payable equals that for similar transactions at arm's length).
(3) The total of the amounts determined under subsection (1) for payments and loans in relation to which section 109XB applies because of the same present entitlement mentioned in paragraph 109XA(1)(c), (2)(b) or (3)(b) must not exceed the unpaid present entitlement mentioned in subsection 109XA(4).
Timing of payment or loan
(4) The trustee is taken under section 109XF or 109XG to have made the payment or loan at the time the interposed entity made the payment or loan mentioned in paragraph 109XF(1)(c) or 109XG(1)(c) to the target entity.
109XI Entitlements to trust income through interposed trusts
Entitlements through interposed trusts
(1) For the purposes of paragraphs 109XA(1)(c), (2)(b) and (3)(b), a private company is taken to be or to become entitled to an amount from the net income of a trust estate (the target trust ) if:
(a) the company is or becomes presently entitled to an amount from the net income of another trust estate (the first interposed trust ) that is interposed between the target trust and the company; and
(b) a reasonable person would conclude (having regard to all the circumstances) that the company is or becomes so entitled solely or mainly as part of an arrangement involving an entitlement to an amount from the target trust; and
(c) either:
(i) the first interposed trust is or becomes presently entitled to an amount from the net income of the target trust; or
(ii) another trust interposed between the target trust and the company is or becomes presently entitled to an amount from the net income of the target trust.
This section operates regardless of certain factors
(2) For the purposes of this section, it does not matter:
(a) whether the company became or becomes entitled to the amount from the net income of the first interposed trust before, after or at the same time as the interposed trust became or becomes presently entitled to an amount from the net income of the target trust; or
(b) whether or not the company became presently entitled to the same amount as the amount to which the interposed trust become entitled.
This section does not operate to the extent Subdivision EA would otherwise apply
(3) Subsection (1) does not apply to the extent that an amount is included in the assessable income of a shareholder, or an associate of a shareholder, of the company under Subdivision EA (as it applies apart from this section) as a result of the present entitlement of any interposed trust.
Amount of entitlement
(4) The amount the private company is taken to be or to become entitled to from the net income of the target trust is the amount (if any) determined by the Commissioner.
(5) The total amount determined under subsection (4) for present entitlements to which that subsection applies because of the same present entitlement to an amount from the net income of the target trust mentioned in paragraph (1)(c) must not exceed that amount.
(6) In determining the amount of the entitlement, the Commissioner must take account of:
(a) the amount the private company is or becomes entitled to from the net income of the first interposed trust; and
(b) how much (if any) of that amount the Commissioner believes represented consideration payable to the private company by:
(i) the target trust; or
(ii) any of the interposed trusts;
for anything (assuming that the consideration payable equals that for similar transactions at arm's length).
Timing of entitlement
(7) The company is taken to be or to become entitled to the amount from the net income of the target trust at the time the company is or becomes entitled to the amount from the net income of the first interposed trust mentioned in paragraph (1)(a).