NIA calls for review of ATO approach to unpaid present entitlements

The National Institute of Accountants (NIA) is calling on the Government to reflect the Australian Taxation Office’s (ATO's) revised draft position on unpaid present entitlements (UPE) amid widespread uncertainty among tax practitioners.

The NIA stated that it is not uncommon in many family trust structures to have a company as the beneficiary of a trust. The trust makes the company beneficiary presently entitled to the income but the money stays within the trust. According to the NIA, this is common practice that is now under attack by the ATO, which now considers these unpaid present entitlements to be loans for Division 7A deemed dividend purposes. It added that if it is the policy intent of the Government to extend Division 7A to UPEs, a legislative fix should be adopted rather than an extended definition of the term ‘financial accommodation’ in its definition of a loan for Division 7A purposes.

“The NIA is concerned that the extended meaning of the term ‘financial accommodation’ creates uncertainty as the courts could easily overturn the ATO’s view when litigated, as it is not without doubt that the courts would agree,” said NIA chief executive officer Andrew Conway. “A legislative change to Division 7A would provide certainty and a definitive start date to assist taxpayers in restructuring their affairs to take account of the change.”

However, he said if the ATO’s view is maintained, some taxpayers would face the prospect of retrospective tax assessments.