Listen
Close
Back
Commercial
Disputes
Employment
Insolvency
Estates
Family
Tax
Division 7A Explained (Part 1): How To Avoid Tax Traps
No items found.
Key Insights
Division 7A is often triggered by informal use of company money. Many Division 7A issues do not start with a formal tax plan. They can arise when business owners withdraw company funds, use company assets personally, or treat company money as available for private purposes. What seems convenient at the time can later create tax issues if Division 7A is not identified and addressed.
Company loans can become deemed dividends. A key risk under Division 7A is that company loans may be treated as deemed dividends. That can create tax consequences for business owners and their advisers if the issue has not been recognised and dealt with under the relevant compliance rules.
Accountants and advisers need to identify the issue early. Division 7A problems can become more difficult once company funds have already been withdrawn or unpaid present entitlements have been left unresolved. Advisers should be alert to company loans, UPEs and personal use of company assets before those issues become ATO compliance problems.
Division 7A can turn what looks like ordinary use of company money into a tax problem.
For private companies, business owners and advisers, the risks often arise when company funds or assets are used informally. Unpaid present entitlements, company loans, deemed dividends, withdrawing company funds and personal use of company assets can all create issues if they are not identified and addressed under the relevant compliance rules.
In Part 1 of this Explain That series, Andrew Henshaw is joined by Archana Manapakkam to discuss Division 7A, why it matters for private companies, and how business owners and advisers can reduce the risk of unexpected tax consequences.
The discussion covers:
- what Division 7A is and why it matters for private companies;
- common mistakes business owners make when withdrawing company funds;
- how company loans can be treated as deemed dividends;
- what deemed dividends can mean for tax bills;
- unpaid present entitlements and ATO compliance risks;
- the risks of using company assets for personal purposes; and
- key compliance rules accountants and tax advisers need to understand.
A practical discussion for business owners, accountants and tax advisers dealing with private companies, company loans, unpaid present entitlements, deemed dividends, personal use of company assets or Division 7A compliance risk.
For advice on Division 7A, private company tax issues, unpaid present entitlements, company loans or ATO compliance risks, contact Velocity Legal’s Tax team.
This podcast in no way constitutes legal advice. It is general in nature and is the opinion of the author only. You should seek legal advice tailored to your individual circumstances before acting on anything related to this podcast.
Move your business forward with Explain That. Reduce your risk, and seize opportunity.
Join 'Explain That', where Australian professionals get monthly insights from Velocity Legal.
Thank you! You are now subscribed.
Oops! Something went wrong. Please fill in the required fields and try again.
.jpg)