Div 7A interposed company arrangements alerted by ATO

The ATO has issued Taxpayer Alert TA 2023/1 in relation to arrangements that involve the interposition of a holding company to access company profits tax-free. The ATO is concerned that individual taxpayers and private companies under their control may be entering into these arrangements with the dominant purpose of tax avoidance.

Arrangements of this nature involve a CGT rollover so that an interposed company that holds shares in the primary company will have no distributable surplus.

The ATO has taken the stance that any loan from an interposed company to the shareholder must be on terms where "there is an express or implied obligation to repay the amount". Without this obligation on the shareholder, the ATO can argue that the purported loan has the dominant intent of tax avoidance.

It is an arguable position that having no intention to repay a loan will, in fact, not meet the requirements to be called a loan and therefore be labelled a payment under Div 7A laws. If an amount is classified as a payment under Div 7A, the calculation of the interposed company's distributable surplus changes, potentially triggering a deemed dividend.

Since your business structure is in line with the entities or taxpayers that normally form such an arrangement, we encourage you to assess your current business structure. It may be necessary to adjust your structure, which may change your final tax position.

If you are contemplating entering an interposed entity arrangement, please contact our office immediately. We may be able to guide you through the contents of this alert to ensure the best possible outcome for your structure.

We can also assist you in applying for a private ruling, make a voluntary disclosure and liaise with the ATO for this matter on your behalf if you need it.

If you have any other queries, please feel free to contact us.

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