Division 7A Tax Risks: ATO’s New Review Process

January 16, 2025

The Australian Taxation Office (ATO) are currently reviewing arrangements that may incorrectly avoid the application of Division 7A to lending arrangements. For example:

1. A trading company guarantees a third party loan to a company related to the trading company (that has little or no distributable surplus);
2. The related company gives or loans amounts from the loan funds to shareholders of the trading company;
3. The trading company ends up making repayments on the loan

The ATO may deem the repayments unfranked dividends to the shareholders under Division 7A.

The Commissioner may cancel any tax benefit arising under the arrangement under Part IVA of the Income Tax Assessment Act 1936.