This Ruling, was released on Wednesday 2.6.2010 and sets out the Commissioner's views on when a private company with an unpaid present entitlement (UPE) from an associated trust is considered to have made a loan to the trust for Div 7A purposes.

It was previously released as Draft Taxation Ruling TR 2009/D8 in December 2009, and is unchanged from the Draft in its main effect.

Broadly, the Ruling provides that the company will be considered to have made a "Div 7A loan" to the trust if either the UPE has been satisfied and the company agrees to loan the amount to the trust, or if the company does not call for payment of a subsisting UPE and thereby "agrees" that it can be used for trust purposes.

For these purposes, the Ruling states that a "Div 7A loan" includes: a loan within its ordinary meaning; an advance of money with an expectation of repayment; the provision of credit or other financial accommodation where a principal sum is ultimately payable; a payment of an amount for, on behalf of, of an entity where there is an obligation of repayment; and transactions that in substance effect such a Div 7A loan. It also indicates that a Div 7A loan can be implied from the circumstances.

The Ruling applies both before and after its date of issue - except in relation to its view of when a subsisting UPE may be a loan for the purpose of Div 7A, in which case the Ruling does not apply to UPEs arising before 16 December 2009 (being the date of issue of the Draft Ruling).

A copy of the ruling can be found on the ATO website by following the link:
TR 2010/3 - Income tax: Division 7A loans: trust entitlements (As at 2 June 2010)

Please note the information contained on this website is general in nature and should not be relied upon as tax advice. If you have a question please contact Sean Urquhart on 02 8264 0755.