Federal Budget 2019-20 | Private tax

April 3, 2019

The Government has heeded concerns and delayed the start date of Division 7A changes for 12 months.

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Further consultation on Division 7A

The Government has delayed the proposed start date of changes to Division 7A by a year, to commence on 1 July 2020, rather than 1 July 2019. The delayed start date is to allow time to further consider stakeholders’ views on the Treasury consultation paper released in October 2018. 

In a submission to Government, Pitcher Partners raised serious concerns that the proposed changes to Division 7A would make it harder for middle market businesses to comply with the provisions and conduct their businesses, particularly in cases where there is no private use of funds. In particular, Pitcher Partners highlighted a number of proposals by Treasury that appeared especially restrictive, such as amendments to the requirements for complying loans, removal of the distributable surplus concept, extending the ability for the ATO to amend tax returns from 4 years to 14 years, removing grandfathering of pre-existing arrangements, shortening of 25-year secured loan arrangements, and increasing the benchmark interest rates from (circa) 5% per annum to (circa) 10% per annum for business related loans. It is positive that the Government has listened to these concerns.

Importantly, the Government has announced it will engage in further consultation to ensure appropriate treatment of transitional arrangements, so taxpayers are not unfairly prejudiced. The Government will reconsider how existing concessional arrangements (such as pre-1997 loans, pre-2009 unpaid trust entitlements, post-2009 unpaid trust entitlements and 25-year secured loans) will be treated when brought into the new regime.

The delayed commencement date gives taxpayers additional time to consider their existing arrangements and may, depending on the result of further consultation, allow existing or new concessional arrangements to remain in place.

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