Announced: Federal Budget 2016-17
Latest update: Consulted paper released in 2018
Current status: Unresolved
The Division 7A deemed dividend rules remains one of the most complex and confusing areas of tax law. Yet targeted amendments announced in the Federal Budget 2016–17 and consulted on in 2018 remain unresolved.
The former government originally announced on 3 May 2016, as part of the Federal Budget 2016–17, that it would make legislative reforms to improve the integrity and operation of Division 7A following a consultation process conducted by the Treasury. Since then, the proposed reforms to Division 7A have been deferred multiple times, resulting in ongoing uncertainty and continued high compliance costs for taxpayers.
The reforms to Division 7A proposed in the Consultation Paper released on 22 October 2018 are based on recommendations by the Board of Taxation and include the following:
- simplified Division 7A loan rules to make it easier for taxpayers to comply with the provisions;
- a self-correction mechanism to assist taxpayers to promptly rectify breaches of Division 7A without having to apply for the Commissioner’s discretion;
- safe harbour rules relating to the use of assets that would provide certainty and simplify compliance for taxpayers;
- technical amendments to improve the integrity and operation of Division 7A while providing increased certainty for taxpayers; and
- clarification that unpaid present entitlements of corporate beneficiaries of a trust fall within the scope of Division 7A.
