COVID-19: Div 7A practice statement updated

The ATO has updated its practice statement on Div 7A to reflect concessions for the lodgment of trust income tax returns for the 2018/19 income year as part of its COVID-19 response. This update complements the ATO’s Division 7A advice to companies.

The update to PS LA 2010/4 clarifies that for entitlements created in the 2018/19 income year, any unpaid present entitlements (UPEs) of corporate beneficiaries would need to be placed on sub-trust by 5 June 2020, or any later lodgment date allowed by the Commissioner. In particular, the definition of “lodgment day” for a private company or a trust in the practice statement has been amended to provide that it is the earlier of:

1. the due date for lodgment of the private company’s or trust’s tax return for the year of income (or, for a trust’s tax return for the 2018-19 year of income, 5 June 2020 if that date is after the due date of the return), and
2. the date of lodgment of the private company’s or trust’s tax return for the year of income.

To avoid Div 7A consequences for certain recipients of payments or loans made by the company during the 2018/19 income year, the ATO said that a company must take the following actions before the deferred lodgment day (or the actual date of lodgment of their 2018/19 income tax return, if earlier):

• Repay in full, or place on terms that comply with section 109N, a loan made by the company during that income year
• Convert a payment made by the company during that income year to a loan on terms that comply with section 109N.

The Commissioner will soon be issuing further guidance for those affected by COVID-19 with minimum yearly repayments due for the year ended 30 June 2020.