You can apply for the Commissioner's discretion to disregard the operation of Division 7A for your client, or to allow a deemed dividend to be franked. The discretion may only be granted if an honest mistake or inadvertent omission has resulted in a breach of Division 7A and the circumstances support the exercise of the discretion. The discretion can't be exercised if your client doesn't have sufficient supporting evidence.
When working with your private company clients, we encourage you to:
- help them understand the core Division 7A provisions
- make them aware of the potential Division 7A implications when accessing money and benefits from their private companies
- gather enough information from them to help you accurately determine how Division 7A applies to their circumstances.
We often receive applications for the Commissioner's discretion from taxpayers who claim an honest mistake was made because they relied on the advice of their tax professional.
Reliance on professional advice doesn't always constitute an honest mistake or inadvertent omission. The adviser's actions must have contributed to the breach and the client's reliance on the advice must have been reasonable.
For these requests, we'll consider the relevant facts, including:
- the nature of the advice
- the disclosures made to the adviser
- whether there's evidence that the adviser's actions contributed to the breach
- whether the adviser has made an honest mistake or inadvertent omission.
It will be difficult to demonstrate that a client has reasonably relied upon professional advice for Division 7A purposes where no Division 7A advice is obtained, or where their adviser hasn't considered the application of Division 7A to the specific circumstances of the client.
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