Skip to content

  • Home
  • COVID-19 Guide
  • Podcast library
  • Client results
  • Expertise
  • News & Insights
  • People
  • Our DNA
  • Inclusion and Diversity
  • Join us
  • Contact Us
Home / NEWS & INSIGHTS / Uncategorized / Division 7A News
Uncategorized 10 July 2020

Division 7A News

Deferral of minimum yearly repayments

As part of the ATO’s response to COVID-19, the Commissioner announced on 26 June 2020 that taxpayers suffering the economic impact of coronavirus and who are unable to meet their minimum yearly repayments in respect of Division 7A loans will be able to apply to defer their minimum yearly repayments for 12 months.

Most advisors will be aware that the borrower under a Division 7A loan must make minimum yearly repayments in respect of the loans on or before 30 June each year.  However, under section 109RD of the Income Tax Assessment Act 1936, the Commissioner is provided with discretion to disregard a deemed dividend which would result from the failure to make the minimum repayments, where the inability to make the payment is due to circumstances outside of the borrower’s control.  It is this administrative power that the Commissioner will rely upon to allow additional time to make the payment for those taxpayers adversely affected by COVID-19.

Affected taxpayers may apply online, using the approved form, for an extension of time to make their minimum yearly repayments.  If the ATO approves the application, taxpayers will be allowed until 31 June 2021 to make their repayments (noting that the following year’s repayment will also fall due at that time).

There is still some uncertainty in relation to such applications – in that the borrower will not know whether the Commissioner will exercise his discretion until such time as the date for payment has passed (and the minimum yearly repayment has not been made).  If the borrower’s application is ultimately disallowed, it will not be possible to go back and make the required payment, or declare a dividend to meet the repayment obligation as at 30 June 2020.  However, where genuine circumstances prevent the payment being made, it is expected that the discretion will be exercised.  In addition, it may still be open to the taxpayer to request exercise of the Commissioner’s discretion under section 109RB (honest mistake or inadvertent omission), or 109Q (undue hardship).

Importantly, the fact that the time period for making a minimum repayment is extended should not result in a debt forgiveness for Division 7A purposes.  In order to give rise to the forgiveness of a debt, the debtor needs to be relieved from obligation to pay the debt, or there must be other evidence that the creditor will not require repayment.  As the relief provided should only postpone payment by the debtor of the minimum yearly repayment owed, the debt should not be considered forgiven for Division 7A purposes.

Status of Division 7A amendments

In other Division 7A news, the Federal Government announced on 30 June 2020 that the proposed changes to Division 7A (first announced in the 2016-17 Federal Budget) will now only apply in relation to income years commencing after the date of Royal Assent of the enabling legislation.

The changes will be progressed as a ‘single consolidated package’ which addresses:

  • unpaid present entitlements under Division 7A;
  • the previously announced self-correction mechanism for inadvertant breaches;
  • safe habour and simplified compliance rules; and
  • a number of previously announced technical amendments to Division 7A.

This is a welcome announcement and a sensible approach given the uncertainty in recent years of the continued delay in commencement of the previously announced changes.  However, having regard to the significant concerns raised with respect to a number of the proposed measures, the postponement will now lead to yet further delay and continued uncertainty for taxpayers with Division 7A (or potential Division 7A) balances.

This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.

About the authors

  • David Hughes

    Partner
  • Melinda Peters

    Partner
  • Duncan Bedford

    Partner
  • Frances Becker

    Senior Associate
  • Jessica Laird

    Senior Associate
  • Anushka De Alwis

    Senior Associate

In other news

Native Title compensation – Lawson v Minister for Environment & Water (SA) (“Lake Victoria case”)

13 April 2021Insight

Department releases new Planning Agreements Practice Note

13 April 2021Insight

Council held liable for negligent misstatement in planning certificate

13 April 2021Insight

Picking the right delivery model for your next infrastructure project

13 April 2021Insight

VIEW ALL NEWS & INSIGHTS

BRISBANE

Level 11, 66 Eagle Street
Brisbane QLD 4000
GPO Box 1855
Brisbane QLD 4001
Tel +61 7 3233 8888
Fax +61 7 3229 9949

 

GET IN TOUCH

    Contact form

    We handle your personal information in accordance with our privacy policy.

    Please do not send us any confidential information. By submitting this form, you agree that our review of the information you submit will not create a lawyer-client relationship between you and our firm (or any lawyer in our firm) and it will not prevent us from representing a party in any matter where the information you submit is relevant, even if that information could be used against you.

    sydney

    Level 32, MLC Centre
    19 Martin Place
    Sydney NSW 2000
    GPO Box 462
    Sydney NSW 2001

    Tel +61 2 8241 5600
    Fax +61 2 8241 5699

     

    GET IN TOUCH

      Contact form


      We handle your personal information in accordance with our privacy policy.

      Please do not send us any confidential information. By submitting this form, you agree that our review of the information you submit will not create a lawyer-client relationship between you and our firm (or any lawyer in our firm) and it will not prevent us from representing a party in any matter where the information you submit is relevant, even if that information could be used against you.

      melbourne

      Level 27, 101 Collins Street
      Melbourne VIC 3000
      GPO Box 2924
      Melbourne VIC 3001

      Tel +61 3 9067 3100
      Fax +61 3 9067 3199

       

      GET IN TOUCH

        Contact form

        We handle your personal information in accordance with our privacy policy.

        Please do not send us any confidential information. By submitting this form, you agree that our review of the information you submit will not create a lawyer-client relationship between you and our firm (or any lawyer in our firm) and it will not prevent us from representing a party in any matter where the information you submit is relevant, even if that information could be used against you.

        follow us

        CLIENT LOGIN

        newcastle

        Level 2, 16 Telford Street
        Newcastle NSW 2300
        PO Box 394
        Newcastle NSW 2300

        Tel +61 2 4914 6900
        Fax +61 2 4914 6999

         

        GET IN TOUCH

          Contact form


          We handle your personal information in accordance with our privacy policy.

          Please do not send us any confidential information. By submitting this form, you agree that our review of the information you submit will not create a lawyer-client relationship between you and our firm (or any lawyer in our firm) and it will not prevent us from representing a party in any matter where the information you submit is relevant, even if that information could be used against you.

          canberra

          Level 9, 2 Phillip Law Street
          Canberra ACT 2601

          Tel +61 2 6243 3699
          Fax +61 2 8241 5699

           

          GET IN TOUCH

            Contact form


            We handle your personal information in accordance with our privacy policy.

            Please do not send us any confidential information. By submitting this form, you agree that our review of the information you submit will not create a lawyer-client relationship between you and our firm (or any lawyer in our firm) and it will not prevent us from representing a party in any matter where the information you submit is relevant, even if that information could be used against you.

            © 2017 McCullough Robertson. Site map Disclaimer Privacy Policy Statement of Business Ethics Credit Reporting Policy

            X