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Holding pattern for division 7A welcomed by IPA

The government announced on Tuesday it is deferring the start date for changes to Division 7A from 1 July 2019 to 1 July 2020.

Holding pattern for division 7A welcomed by IPA
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  • Maja Garaca Djurdjevic
  • April 03, 2019
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The Institute of Public Accountants (IPA) has welcomed the deferral of the start date for changes to Division 7A announced by the Morrison government on Tuesday.

Division 7A is all about integrity measures primarily aimed at private company loans, payments and debt forgiveness to shareholders or their associates.  It also extends to unpaid present entitlements (UPEs) where a private company loans funds back to a trust which has been a controversial, complex area of Division 7A tax law.

The government issued a consultation paper in October 2018 seeking views on the proposed implementation approach for the amendments to Division 7A. 

"The consultation paper was not well received by stakeholders, particularly in its deviation in a few critical areas when compared to recommendations detailed in the 2014 Board of Tax review of Division 7A," said IPA chief executive officer, Andrew Conway.

He explained that the IPA is pleased that the changes proposed in the consultation paper will be subject to further consultation with stakeholders.

"Some of the changes proposed were not business friendly and would have resulted in adverse cash flow consequences and the possibility of double taxation with the removal of the distributable surplus test," Mr Conway said.

Another aspect, he said, is the inclusion of all UPEs including pre-1997 loans within the ambit of Division 7A requiring loan repayments and interest.

"This deferral announcement comes with a sigh of relief as it removes some of the uncertainties that practitioners faced trying to advise clients with Division 7A issues prior to 1 July 2019 deadline without any definitive legislation," said Mr Conway.

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