ATO ID 2005 297
ATO ID 2005/297 | Income Tax: Division 7A: multiple Subdivision EA loans and section 109Y
Status: May be released
Issue
Where in an income year, a trustee makes loans to different shareholders (or associates) of a private company beneficiary with unpaid present entitlement, and section 109XB of Subdivision EA of Part III of the Income Tax Assessment Act 1936 (ITAA 1936) operates on more than one loan, can there be a proportionate reduction of the section 109XB assessable amounts because of the operation of subsection 109XB(2) of the ITAA 1936?
Decision
Yes. Where in an income year, a trustee makes loans to different shareholders (or associates) of a private company beneficiary with unpaid present entitlement, and section 109XB of the ITAA 1936 operates on more than one loan, there may be a proportionate reduction in the respective section 109XB assessable amounts because of the operation of subsection 109XB(2).
Facts
- Trust has a private company beneficiary with a UPE of $100,000.
- Trustee makes five $100,000 loans to different shareholders.
- Loans are not repaid by lodgment day.
- Private company's distributable surplus is $100,000.
Reasons for Decision
Subdivision EA (specifically section 109XB) operates to treat the loans as dividends. However, subsection 109XB(2) and section 109Y provide for a reduction if the total loans exceed the distributable surplus. In this case, each $100,000 loan would be reduced to $20,000 ($100,000 beneficiary UPE x $100,000 individual loan / $500,000 total loans).
Source: ATO Legal Database