Writing in today’s AFR, tax partner Shaun Cartoon warns that a popular family group structure is particularly vulnerable to scrutiny from the ATO – companies falling foul of Division 7A.
The scenario Shaun says he’s seeing more and more often is where legal structures established decades ago by “mum and dad” business owners have not kept pace with the success of their fast-growing enterprise and wealth. “The ramifications can be disastrous,” he writes, “particularly when it involves non-compliance with Division 7A.”
Describing how the complex rules in Division 7A operate, Shaun outlines examples of where families are unwittingly breaking them and, as a consequence, facing double taxation on a private company “loan”, potentially placing even the wealthiest of families under financial stress.
While Division 7A has a release valve in the form of a discretion that can be exercised by the ATO, Shaun warns that it is becoming harder to obtain.
“As we approach the 30th anniversary of Division 7A, the ATO has lost its patience with accountants pleading ignorance of the operation of the rules.”
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