When a company becomes presently entitled to trust income, it is imperative that the rules in Division 7A of the Income Tax Assessment Act 1936 are front and square in the minds of the trustees and their advisors. This importance has been taken up a notch by the Australian Taxation Office’s (ATO) recently released Taxation Determination TD 2022/11 (TD 2022/11). This paper explores the workings of Division 7A and unpaid present entitlements (UPEs), providing tips and traps to be mindful of, including:

• What happens if the distribution is paid out and then loaned back by the company?

• The use of sub-trusts and how the ATO’s guidance has changed from Taxation Ruling TR 2010/3 (TR 2010/3) to TD 2022/11.

• Strategies to tackle Division 7A applying to:

  • pre-1 July 2022 distributions; and

  • post-30 June 2022 distributions.

• What are the tax implications of forgiving a pre-16 December 2009 UPE?

• The 25 year fully secured maximum term loan:

  • When can this be used?

  • How are practitioners tackling the issue with the proposed Division 7A amendments on the horizon?

• Are there any CGT issues to consider with UPEs?

• In what situations will the Commissioner’s discretion under section 109RB be exercised? 

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