Changes to Section 109UB

The Treasurer has announced new provisions to replace Section 109UB. The provisions are designed to curb income being distributed to trustees of a trust in way that avoids personal income tax applying to the distribution. The new provisions will replace Section 109UB in situations where: a private company is presently entitled to trust income of a trust estate but that income has not been paid to the company; and the trustee distributes the underlying cash to a shareholder (or their associate) of the company in the form of a loan, payment, or forgiven debt; the loan, payment or forgiven debt will be subject to the deemed dividend rules contained in Division 7A. Exclusions include settled amounts, and distributions attributable to certain tax preferences such as the 50% CGT concession and the disposal of pre CGT assets. Where the loan is taken to fall within Division 7A the terms and conditions of the loan (including repayments) will be taken to have arisen from the private company to the shareholder. Transitional rules Transitional rules will apply until the date of introduction of the legislation. Where a distribution has been taken in the form of a loan, the shareholder (or associate) will have until the due date of their tax return to repay the loan (for the year the loan was made). If the loan is not repaid by this time, the loan will be deemed to be a private company loan to the shareholder under Division 7A. Timing The provisions will apply to loans, payments and forgiven debts arising on or after 12 December 2002. The full detail of the provisions has not yet been released. The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.