Income Tax Assessment Act 1936

PART III - LIABILITY TO TAXATION  

Division 7A - Distributions to entities connected with a private company  

Subdivision EA - Unpaid present entitlements  

SECTION 109XA   PAYMENTS, LOANS AND DEBT FORGIVENESS BY A TRUSTEE IN FAVOUR OF A SHAREHOLDER ETC. OF A PRIVATE COMPANY WITH AN UNPAID PRESENT ENTITLEMENT  

109XA(1)   Payments.  

Section 109XB applies if:

(a) a trustee makes a payment (including a payment through an interposed entity as described in section 109XF ) to a shareholder or an associate of a shareholder of a private company (except a shareholder or associate that is a company) (the actual transaction ); and

(b) the payment is a discharge of or a reduction in a present entitlement of the shareholder or associate that is wholly or partly attributable to an amount that is an unrealised gain; and

(c) either:

(i) the company is presently entitled to an amount from the net income of the trust estate at the time the actual transaction takes place, and the whole of that amount has not been paid to the company before the earlier of the due date for lodgment and the date of lodgment of the trustee's return of income for the trust for the year of income of the trust in which the actual transaction takes place; or

(ii) the company becomes presently entitled to an amount from the net income of the trust estate after the actual transaction takes place, but before the earlier of the due date for lodgment and the date of lodgment of the trustee's return of income for the trust for the year of income of the trust in which the actual transaction takes place, and the whole of the amount has not been paid to the company before the earlier of those dates.

Note:

For entitlements through interposed trusts, see section 109XI .

Loan repayments

109XA(1A)    

Disregard paragraph (1)(b) if:

(a) subsection (1) has previously applied because the trustee made a payment (the original transaction ) to the shareholder, or to an associate of the shareholder, during previous year of income; and

(b) the shareholder, or an associate of the shareholder, makes a loan or loans to the trustee on or after 1 July 2009; and

(c) either:

(i) a reasonable person would conclude (having regard to all the circumstances) that at the time the original transaction took place the shareholder, or an associate of the shareholder, intended to make the loan or loans to the trustee; or

(ii) the shareholder, or an associate of the shareholder, made the loan or loans to the trustee before the time the original transaction took place and a reasonable person would conclude (having regard to all the circumstances) that the trustee obtained the loan or loans in order to make the payment; and

(d) the actual transaction is applied to repay all or a part of the loan or loans.

109XA(1B)   [ Pecuniary obligations]  

For the purposes of applying section 109XB in a case covered by subsections (1) and (1A) of this section, disregard section 109J (Payments discharging pecuniary obligations not treated as dividends).

109XA(2)   Loans.  

Section 109XB applies if:

(a) a trustee makes a loan (including a loan through an interposed entity as described in section 109XG ) to a shareholder or an associate of a shareholder of a private company (except a shareholder or associate that is a company) (the actual transaction ); and

(b) either:

(i) the company is presently entitled to an amount from the net income of the trust estate at the time the actual transaction takes place, and the whole of that amount has not been paid to the company before the earlier of the due date for lodgment and the date of lodgment of the trustee's return of income for the trust for the year of income of the trust in which the actual transaction takes place; or

(ii) the company becomes presently entitled to an amount from the net income of the trust estate after the actual transaction takes place, but before the earlier of the due date for lodgment and the date of lodgment of the trustee's return of income for the trust for the year of income of the trust in which the actual transaction takes place, and the whole of the amount has not been paid to the company before the earlier of those dates.

Note:

For entitlements through interposed trusts, see section 109XI .

109XA(3)   Forgiven debts.  

Section 109XB applies if:

(a) all or part of a debt owed to a trustee by a shareholder or an associate of a shareholder of a private company is forgiven (except where the shareholder or associate is a company) (the actual transaction ); and

(b) either:

(i) the company is presently entitled to an amount from the net income of the trust estate at the time the actual transaction takes place, and the whole of that amount has not been paid to the company before the earlier of the due date for lodgment and the date of lodgment of the trustee's return of income for the trust for the year of income of the trust in which the actual transaction takes place; or

(ii) the company becomes presently entitled to an amount from the net income of the trust estate after the actual transaction takes place, but before the earlier of the due date for lodgment and the date of lodgment of the trustee's return of income for the trust for the year of income of the trust in which the actual transaction takes place, and the whole of the amount has not been paid to the company before the earlier of those dates.

Note:

For entitlements through interposed trusts, see section 109XI .

109XA(4)   Amount involved in the actual transaction.  

The amount involved in the actual transaction is the lesser of:

(a) the amount actually involved in the actual transaction; and

(b) the amount worked out using the formula:

Unpaid present entitlement

−

Previous transactions

where:

previous transactions
means the sum of:

(a) the amounts that, because of previous applications of section 109UB (as in force before the commencement of this section) have been taken to be loans; and

(b) the amounts that, because of previous applications of this Subdivision, have been included in an entity's assessable income;

in relation to the unpaid present entitlement.

unpaid present entitlement
means:

(a) in a case mentioned in subparagraph (1)(c)(i), (2)(b)(i) or (3)(b)(i) - the amount of the present entitlement that remained unpaid on the earlier of the dates mentioned in that subparagraph; and

(b) in a case mentioned in subparagraph (1)(c)(ii), (2)(b)(ii) or (3)(b)(ii) - the amount of the present entitlement that remained unpaid on the earlier of the dates mentioned in that subparagraph.

109XA(5)   The amount of the actual transaction where the entitlement is only partly attributable to an unrealised gain.  

For the purposes of subsection (4), where the actual transaction was a payment and that payment was only partly attributable to an amount that is an unrealised gain, the amount of the actual transaction is taken to be the amount of the payment that was attributable to the amount that is the unrealised gain.

109XA(6)   Creation of a present entitlement is not a payment.  

The creation of a present entitlement to the capital or income of a trust estate is not, of itself, a payment for the purposes of this Subdivision.

109XA(7)   Meaning of unrealised gain .  

In this section:

unrealised gain
, in relation to a trust estate and an actual payment, means any unrealised gain, whether of a capital or income nature, but does not include an unrealised gain to the extent that it has been or would be included in the assessable income of the trust, apart from this Division, for:

(a) a year of income before the year in which the actual payment was made; or

(b) the year of income in which the actual payment was made; or

(c) the year of income following the year in which the actual payment was made.