Contrary to the Commissioner’s long-held view, the Full Federal Court has unanimously held that unpaid present entitlements owing to corporate beneficiaries are not loans under Div 7A.
On 19 February 2025, the Full Federal Court (the court), in a unanimous judgment, held, contrary to the view of the Commissioner since 16 December 2009,1 that an unpaid present entitlement (UPE) owing to a corporate beneficiary is not a loan under s 109D(3) of Div 7A in Pt III of the Income Tax Assessment Act 1936 (Cth) (ITAA36).2 However, just as Miracle Max explains that “mostly dead is still slightly alive”, the idea that UPEs as loans under s 109D are completely gone may be premature.
The ATO may apply for special leave to appeal the court’s decision to the High Court of Australia. Separately, legislative changes to Div 7A were proposed by the former Coalition Government (see below). Absent either of those, taxpayers will be faced with “unravelling” arrangements, or tax, penalty or interest paid (which may now be out of time to amend), in accordance with the Commissioner’s post-16 December 2009 view. And the Full Federal Court’s decision does require advisers to revisit the application of other provisions which have, as a result of the Commissioner’s views, been sidelined.
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