Last October, Treasury released a long-awaited consultation paper of proposed amendments to Division 7A, which raised concerns from tax experts due to its departure from some recommendations in the Board of Taxation’s report.
In its pre-budget submission, Chartered Accountants Australia and New Zealand has called for the government to reveal its position on the matter after hearing numerous concerns from the industry.
“Strong concerns were raised [by the tax community], particularly about “old”, unpaid present entitlement arrangements (pre-December 2009) and short time frames proposed for transitional arrangements,” the submission said.
“[We] urge the government to use the budget as a platform for announcing the outcome of its deliberations on the many submissions received.
“This announcement will need to be sufficiently detailed for advisers to confidently engage with their clients about new and existing Division 7A arrangements.”
Likewise, the Institute of Public Accountants said the consultation paper took a selective approach and has called for greater clarity ahead of the proposed 1 July 2019 start date.
“We recommend that further consultation be undertaken to revisit ways to minimise the operation of Division 7A to businesses that use corporate profits to fund business activities,” said the IPA in its submission.
“We welcome further consultation on the reform of Division 7A, but understandably given the current political environment we believe the proposed start date of 1 July 2019 is unrealistic given significant differences in the policy direction being proposed.”
Issues with the consultation paper
CA ANZ’s broad concerns with proposed changes include the inclusion of the pre-4 December 1997 loans and pre-16 December 2009 unpaid present entitlements in the revised Division 7A regime; the removal of the distributable surplus with no safeguard provision included to ensure that return of capital and previously Division 7A assessed debt are not subject to Division 7A; and the calculation of the minimum yearly repayment for the 10-year loan, in particular the requirement to make equal principal repayments over the 10 year period, and the annual benchmark interest rate.
The Tax Institute had previously criticised Treasury’s proposed amendments to Division 7A as a “band-aid fix”, calling for an explanation of why the Board of Taxation’s recommendations were not adopted.
Pitcher Partners tax partner Alexis Kokkinos had also spoken against the proposed changes, noting that it could see “double or triple taxation” in some cases.