spacer spacer spacer spacer spacer spacer spacer spacer
spacer
spacer
    Latest Accounting News

Telephone: 03 9727 1244
Facsimile: 03 9727 0244
Email: Email Us

Address: Suite 2, 96 Manchester Rd, Mooroolbark VIC 3138
spacer
Hot Issues
Small businesses may ‘collapse under strain of payday super’, IPA warns
ATO’s hands tied with scrapping on-hold debts, expert says
What Drives Your Business Growth and Profits?
Australian Taxation Office (ATO) shifting to firmer debt collection activity
Why employee v contractor comes down to fine print
Sharing economy reporting regime for platform operators
Countries producing the most solar power by gigawatt hours
Illegal access nets $637 million
Accessing superannuation benefits.
Does your business have a company Power of Attorney?
Labor tweaks stage 3 tax cuts to make room for ‘middle Australia’
GrantConnect
2 in 3 SMEs benefit from instant asset write-off, survey reveals
Updated guidance on R&D claims
Do you know how to recover debts?
Wheat Production by Country
Types of small business benchmarks
What is a Commercial Lease?
ATO warns advisers against suspect R&D tax claims
The year of workplace law upheaval
How to Resolve Invoice Payment Disputes
Raft of revenue tweaks in MYEFO to raise millions
The Countries that Export the Most Wine in the World
Articles archive
Quarter 4 October - December 2023
Quarter 3 July - September 2023
Quarter 2 April - June 2023
Quarter 1 January - March 2023
Quarter 4 October - December 2022
Quarter 3 July - September 2022
Quarter 2 April - June 2022
Quarter 1 January - March 2022
Quarter 4 October - December 2021
Quarter 3 July - September 2021
Quarter 2 April - June 2021
Quarter 1 January - March 2021
Quarter 4 October - December 2020
Quarter 3 July - September 2020
Quarter 2 April - June 2020
Quarter 1 January - March 2020
Quarter 4 October - December 2019
Quarter 3 July - September 2019
Quarter 2 April - June 2019
Quarter 1 January - March 2019
Quarter 4 October - December 2018
Quarter 3 July - September 2018
Quarter 2 April - June 2018
Quarter 1 January - March 2018
Quarter 4 October - December 2017
Quarter 3 July - September 2017
Quarter 2 April - June 2017
Quarter 1 January - March 2017
Quarter 4 October - December 2016
Quarter 3 July - September 2016
Quarter 2 April - June 2016
Quarter 1 January - March 2016
Quarter 4 October - December 2015
Quarter 3 July - September 2015
Quarter 2 April - June 2015
Quarter 1 January - March 2015
Quarter 4 October - December 2014
Quarter 4 of 2016
Articles
Big-ticket tax set for government review
FBT – Christmas Parties and Taxi Fares
Unclaimed Monies - Christmas Project?
Employee Christmas Parties and Gifts – Any FBT?
‘Beware the tax man’ eyeing holiday period activity
Merry Christmas for 2016, a Happy New Year and a prosperous 2017.
Research reveals key to ‘high-performing’ firms
Late payments hitting SMEs hard
Estate planning issues flagged with $1.6m pension transfer cap
New fleet “safe harbour” approach for car fringe benefits
Travel to a workplace: What’s in, what’s out
Struggling Business Turnarounds
SMSF practitioners told to urgently address TRIS issues
$20,000 write off is only available for small business, right? Well…
Do you need an Employment Agreement?
What does the new withholding tax mean for your clients?
Domestic (non-marital) Relationships
Is there a problem with using your company’s assets for yourself?
SMEs at risk of ‘falling foul’ of ATO
Scams, fraudsters and viruses
Got your car log book ready?
Is there a problem with using your company’s assets for yourself?

 

Assets that belong to your business but that are being used for your own benefit or enjoyment can potentially trigger a tax issue known as “Division 7A”. 



       


 


You have set up running your business in a company to get all the “asset protection” advantages with a corporate veil.  However, being a private company with most of the directors and shareholders being family or friends, company decisions can easily be skewed to benefit individuals.  This may not be intentional as many of you would think of company assets as your own.  However, considering that the corporate tax rate is 30% (or 28.5% in specific circumstances), and the highest individual margin rate is 49%, you can gain some tax relief from this arbitrage. Division 7A is a designed to prevent this tax mischief.  


What’s Division 7A?


Division 7A treats a payment or other benefit provided by a private company to a shareholder (or their associate) as a payment for income tax purposes. This integrity measure can apply even if the recipient treats the transaction as a gift, or a loan, or the waiving of a debt.


The Division 7A net is wide, and may potentially catch many transactions that, in substance, do not involve a distribution of profits, such as using a company’s assets for private enjoyment. This is especially the case since the definition of “payment” was expanded to include the provision of assets.


Division 7A can happen if I use company assets for personal use?


That’s right. Real tangible company assets are usually the biggest exposure that you may have to Division 7A without realising it, and may unintentionally fall out of any discussions you may have with us. 


An example would be a holiday house that is owned by a company but is used by a shareholder of that company. The value of this use, under Division 7A, can be deemed to be a dividend and form part of the shareholder’s assessable income.  There are certain exemptions that can apply however – for example, if the house was being used as a main residence.


Watch out for motor vehicles


Another fairly common example concerns motor vehicles, but they are most likely caught by fringe benefits tax (FBT) rather than Division 7A because those vehicles are typically provided to directors in their capacity as employees despite those directors being shareholders.


One of the results from the ATO’s recent ramping up of its data matching activities has been an increased triggering of both Division 7A and FBT provisions after vehicles registered to businesses were found to be used privately by, respectively, shareholders or employees. 


Other issues to consider when using business assets


If your transactions are subject to Division 7A, you may also need to consider some other areas of tax, such as FBT, issues related to share dividends or family law. 


FBT


Division 7A does not apply to payments made to shareholders or their associates in their capacity as an employee or as an associate of an employee of a private company. However, such payments may be subject to FBT.


On the other hand, Division 7A does apply to loans and debt forgiveness provided to shareholders or their associates, even where such benefits are provided in their capacity as an employee or as an associate of an employee. To avoid double taxation, such benefits are not subject to FBT.


Dividend imputation, franking credits


Payments and other benefits taken to be Division 7A dividends are generally unfrankable distributions unless they are provided under a family law obligation. However the ATO has a general discretion to allow a Division 7A dividend to be frankable if it arises because of an honest mistake or inadvertent omission.


Family law


Payments and other benefits provided by a private company to shareholders or their associates as a result of divorce or other relationship breakdowns may be treated as Division 7A dividends and are assessable income of the recipient.  However such payments or other benefits are treated as frankable dividends if provided under a family law obligation, such as a court order, a maintenance agreement approved by a court under the family law act or court orders relating to a de facto marriage breakdown.



Tax & Super Australia 
www.taxandsuperaustralia.com.au




11th-October-2016
 
sitemap | site by AcctWeb