As part of its response to COVID-19, on 13 May 2020 the Australian Taxation Office (ATO) announced that it has extended the time for lodgment of 2019 tax returns for certain companies and trusts and made changes to its administration of Division 7A of the Income Tax Assessment Act 1936.

Companies

As part of its response to COVID-19, the ATO has extended the lodgment day for 2019 company tax returns for many companies (Deferred Lodgment Day).

Company income tax returns due on 15 May 2020 under the tax agent lodgment program have received extensions until 5 June 2020. (Companies that made a direct request for lodgment deferrals may have received a later lodgment date).

To avoid Division 7A consequences for certain recipients of payments or loans made by the company during the 2019 income year, the following actions must be undertaken before the Deferred Lodgment Day (or the actual date of lodgment, if earlier):

repay in full, or place on Division 7A compliant terms, a loan made by the company during the 2019 income year; or
convert a payment made by the company during the 2019 income year to to a Division 7A compliant loan.

For a loan on Division 7A compliant terms before the Deferred Lodgment Date, the borrower will need to make their first minimum yearly repayment (MYR) by 30 June 2020. The ATO said that it will be issuing further guidance for those affected by COVID-19 with MYRs due for the year ended 30 June 2020.

Trusts, unpaid present entitlements, and sub-trusts

The ATO announced a concessional arrangement that extends the lodgment date for trust income tax returns.

Trust income tax returns due on 15 May 2020 under the tax agent lodgment program can be lodged by 5 June 2020 provided any tax liability is paid by that date. (Trusts that made a direct request for lodgment deferrals may have received a later lodgment date).

The extension to 5 June 2020 is not a lodgment due date but a concessional arrangement where failure to lodge on time penalties will not apply if returns are lodged and tax liabilities paid by this date.

In Law Administration Practice Statement PSLA 2010/4 the ATO sets out an administrative practice for unpaid present entitlements (UPEs) of corporate beneficiaries. Under this practice the ATO accepts that there are no Division 7A consequences where funds representing the entitlement are placed on sub-trust for the sole benefit of that beneficiary before the lodgement date for the trust tax return.

The ATO announced it has adjusted PSLA 2010/4 for entitlements created in the 2019 income year so that the UPEs need to be placed on sub-trust by 5 June 2020, or any later lodgement date allowed by the ATO.

For more information please contact:

Neil Brydges
Principal Lawyer | Accredited Specialist in Tax Law
M +61 407 821 157 | T +61 3 9611 0176
E nbrydges@sladen.com.au

Daniel Smedley
Principal | Accredited Specialist in Tax Law
M +61 411 319 327| T +61 3 9611 0105
E: dsmedley@sladen.com.au