(b) the shareholder, or an associate of the shareholder, makes a loan or loans to the trustee on or after 1 July 2009; and
(c) either:
(i) a reasonable person would conclude (having regard to all the circumstances) that at the time the original transaction took place the shareholder, or an associate of the shareholder, intended to make the loan or loans to the trustee; or
(ii) the shareholder, or an associate of the shareholder, made the loan or loans to the trustee before the time the original transaction took place and a reasonable person would conclude (having regard to all the circumstances) that the trustee obtained the loan or loans in order to make the payment; and
(d) the actual transaction is applied to repay all or a part of the loan or loans.
(1B) For the purposes of applying section 109XB in a case covered by subsections (1) and (1A) of this section, disregard section 109J (Payments discharging pecuniary obligations not treated as dividends).
Loans
(2) Section 109XB applies if:
(a) a trustee makes a loan (including a loan through an interposed entity as described in section 109XG) to a shareholder or an associate of a shareholder of a private company (except a shareholder or associate that is a company) (the actual transaction); and
(b) either:
(i) the company is presently entitled to an amount from the net income of the trust estate at the time the actual transaction takes place, and the whole of that amount has not been paid to the company before the earlier of the due date for lodgment and the date of lodgment of the trustee’s return of income for the trust for the year of income of the trust in which the actual transaction takes place; or
(ii) the company becomes presently entitled to an amount from the net income of the trust estate after the actual transaction takes place, but before the earlier of the due date for lodgment and the date of lodgment of the trustee’s return of income for the trust for the year of income of the trust in which the actual transaction takes place, and the whole of the amount has not been paid to the company before the earlier of those dates.
Note: For entitlements through interposed trusts, see section 109XI.
Forgiven debts
(3) Section 109XB applies if:
(a) all or part of a debt owed to a trustee by a shareholder or an associate of a shareholder of a private company is forgiven (except where the shareholder or associate is a company) (the actual transaction); and
(b) either:
(i) the company is presently entitled to an amount from the net income of the trust estate at the time the actual transaction takes place, and the whole of that amount has not been paid to the company before the earlier of the due date for lodgment and the date of lodgment of the trustee’s return of income for the trust for the year of income of the trust in which the actual transaction takes place; or
(ii) the company becomes presently entitled to an amount from the net income of the trust estate after the actual transaction takes place, but before the earlier of the due date for lodgment and the date of lodgment of the trustee’s return of income for the trust for the year of income of the trust in which the actual transaction takes place, and the whole of the amount has not been paid to the company before the earlier of those dates.
Note: For entitlements through interposed trusts, see section 109XI.
Amount involved in the actual transaction
(4) The amount involved in the actual transaction is the lesser of:
(a) the amount actually involved in the actual transaction; and
(b) the amount worked out using the formula:
Start formula Unpaid present entitlement minus Previous transactions end formula
where:
previous transactions means the sum of:
(a) the amounts that, because of previous applications of section 109UB (as in force before the commencement of this section) have been taken to be loans; and
(b) the amounts that, because of previous applications of this Subdivision, have been included in an entity’s assessable income;
in relation to the unpaid present entitlement.
unpaid present entitlement means:
(a) in a case mentioned in subparagraph (1)(c)(i), (2)(b)(i) or (3)(b)(i)—the amount of the present entitlement that remained unpaid on the earlier of the dates mentioned in that subparagraph; and
(b) in a case mentioned in subparagraph (1)(c)(ii), (2)(b)(ii) or (3)(b)(ii)—the amount of the present entitlement that remained unpaid on the earlier of the dates mentioned in that subparagraph.
The amount of the actual transaction where the entitlement is only partly attributable to an unrealised gain
(5) For the purposes of subsection (4), where the actual transaction was a payment and that payment was only partly attributable to an amount that is an unrealised gain, the amount of the actual transaction is taken to be the amount of the payment that was attributable to the amount that is the unrealised gain.
Creation of a present entitlement is not a payment
(6) The creation of a present entitlement to the capital or income of a trust estate is not, of itself, a payment for the purposes of this Subdivision.
Meaning of unrealised gain
(7) In this section:
unrealised gain, in relation to a trust estate and an actual payment, means any unrealised gain, whether of a capital or income nature, but does not include an unrealised gain to the extent that it has been or would be included in the assessable income of the trust, apart from this Division, for:
(a) a year of income before the year in which the actual payment was made; or
(b) the year of income in which the actual payment was made; or
(c) the year of income following the year in which the actual payment was made.
109XB Amounts included in assessable income
(1) An amount is included, as if it were a dividend paid by the company at the end of the year of income of the company in which the actual transaction took place, in the assessable income of the shareholder or associate referred to in subsection 109XA(1), (2) or (3) if:
(a) had the actual transaction been done by a private company (the notional company); and
(b) had the shareholder or associate been a shareholder of the notional company at the time the actual transaction took place;
an amount (the Division 7A amount) would have been included in the shareholder’s or associate’s assessable income because of a provision of this Division outside this Subdivision.
(2) Subject to section 109Y, the amount that is included under subsection (1) is the Division 7A amount.
Note: There are some modifications of this Division for the purposes of working out the Division 7A amount: see section 109XC.
109XC Modifications
Modifications for this Subdivision only
(1) The modifications in this section have effect for the purposes of the operation of this Subdivision.
General modifications
(2) This Division (but not this Subdivision) applies to an actual transaction done by a trustee of a trust estate with these modifications:
(a) a reference (except in section 109Y) to an amount paid to a private company has effect as a reference to an amount paid to the trustee; and
(b) a reference to a year of income of a private company has effect as a reference to the corresponding year of income of the trust estate; and
(c) a reference to the ordinary course of a private company’s business has effect as a reference to the ordinary course of the trust estate’s business.
Modified operation of section 109J
(4) Section 109J does not apply to a payment to the extent that it is a discharge of or a reduction in a present entitlement.
Modified operation of section 109R
(6) For the purposes of applying section 109R to an actual transaction:
(a) a reference in that section to obtaining a loan from a private company has effect as a reference to obtaining a loan from the trustee; and
(b) a reference in that section to property transferred to a private company has effect as a reference to property transferred to the trustee; and
(c) a reference in that section to an amount paid by a private company for a transfer of property has effect as a reference to an amount paid by the trustee for a transfer of property.
Modified operation of section 109Y
(7) Section 109Y applies to the Division 7A amount in this way:
(a) assume that the private company referred to in subsection 109XA(1), (2) or (3) had been taken to have paid a dividend to the shareholder or associate referred to in that subsection equal to the Division 7A amount; and
(b) assume that the dividend was taken to have been paid at the end of the year of income of the company in which the actual transaction took place; and
(c) a reference in that section to a private company’s distributable surplus has effect as a reference to the distributable surplus of the private company referred to in paragraph (a).
Certain provisions do not apply
(8) Subsection 109D(1A), sections 109K, 109NA and 109NB and paragraph 109R(3)(a) do not apply to an actual transaction.
109XD Forgiveness of loan debt does not give rise to assessable income if loan gives rise to assessable income
An amount is not included in the assessable income for a year of income of the shareholder or associate referred to in subsection 109XA(3) because of the forgiveness of an amount of a debt resulting from a loan if, because of the loan, an amount was included in the assessable income of the shareholder or associate under section 109XB (or former section 109UB) in that or an earlier year of income.
The following is a simplified outline of this Subdivision:
Payments and loans
This Subdivision allows an amount to be included in an entity’s (the target entity’s) assessable income under Subdivision EA if an entity interposed between a trustee and the target entity makes a payment or loan to the target entity under an arrangement involving the trustee.
This result is achieved by treating the trustee as making a payment or loan of an amount determined by the Commissioner to the target entity.
The arrangement must involve the trustee and one or more interposed entities in making payments or loans for the purpose of the target entity receiving a payment or loan from an interposed entity.
If the target entity repays a fraction of the loan made by the interposed entity, the target entity is treated as repaying the same fraction of the loan taken to have been made by the trustee.
Some provisions that prevent payments or loans from giving rise to assessable income do not apply to payments or loans this Subdivision treats a trustee as making.
Present entitlements
This Subdivision similarly allows an amount to be included in an entity’s assessable income under Subdivision EA if a private company is or becomes presently entitled to an amount from the net income of a trust estate interposed between the private company and another trust estate (the target trust) under an arrangement involving the target trust.
109XF Payments through interposed entities
(1) For the purposes of paragraphs 109XA(1)(a) and (1A)(a), a trustee is taken to have made a payment to a shareholder, or to an associate of a shareholder, (the target entity) of a private company if:
(a) the trustee makes a payment or loan to another entity (the first interposed entity) that is interposed between:
(i) the trustee; and
(ii) the target entity; and
(b) a reasonable person would conclude (having regard to all the circumstances) that the trustee made the payment or loan solely or mainly as part of an arrangement involving a payment to the target entity; and
(c) either:
(i) the first interposed entity makes a payment to the target entity; or
(ii) another entity interposed between the trustee and the target entity makes a payment to the target entity.
(2) For the purposes of this section, it does not matter:
(a) whether the interposed entity made the payment to the target entity before, after or at the same time as the first interposed entity received the payment or loan from the trustee; or
(b) whether or not the interposed entity paid the target entity the same amount as the trustee paid or lent the first interposed entity.
(3) Treat the reference in paragraph 109XA(1)(b) to a payment as being a reference to the payment to the target entity mentioned in paragraph (1)(c) of this section.
109XG Loans through interposed entities
Loans by a trustee through interposed entities
(1) For the purposes of paragraph 109XA(2)(a), a trustee is taken to have made a loan (the notional loan) to a shareholder, or to an associate of a shareholder, (the target entity) of a private company if:
(a) the trustee makes a payment or loan to another entity (the first interposed entity) that is interposed between:
(i) the trustee; and
(ii) the target entity; and
(b) a reasonable person would conclude (having regard to all the circumstances) that the trustee made the payment or loan solely or mainly as part of an arrangement involving a loan to the target entity; and
(c) either:
(i) the first interposed entity makes a loan to the target entity; or
(ii) another entity interposed between the trustee and the target entity makes a loan to the target entity.
(2) For the purposes of this section, it does not matter:
(a) whether the interposed entity made the loan to the target entity before, after or at the same time as the first interposed entity received the payment or loan from the trustee; or
(b) whether or not the interposed entity lent the target entity the same amount as the trustee paid or lent the first interposed entity.
Notional loans
(3) When working out whether an amount is included in the assessable income of the target entity under section 109XB as a result of the notional loan under subsection (1) of this section, and the amount included in assessable income, assume that the target entity repays an amount of the notional loan equal to the amount worked out using the formula:
Start formula Repayment made by target entity to lender times start fraction Amount of notional loan over Amount actually lent to target entity end fraction end formula
where:
amount actually lent to target entity is the amount the interposed entity lent to the target entity.
repayment made by target entity to lender is the amount of any repayment made by the target entity of the loan the interposed entity made to the target entity.
(4) For the purposes of section 109E (Amalgamated loan from a previous year treated as dividend if minimum repayment not made):
(a) treat the notional loan as an amalgamated loan from the private company to the target entity; and
(b) treat the amount of the notional loan worked out under section 109XH as the amount of the amalgamated loan; and
(c) treat the agreement under which the actual loan was made as the agreement under which the amalgamated loan was made; and
(d) treat repayments by the target entity of the amount of the notional loan worked out under subsection (3) of this section as payments by the target entity to the private company in relation to the amalgamated loan.
(5) For the purposes of section 109N (about certain loans not being treated as dividends), treat the agreement under which the actual loan was made as the agreement under which the notional loan was made.
109XH Amount and timing of payment or loan through interposed entities
Amount of payment or loan
(1) The amount the trustee is taken under section 109XF or 109XG to have paid or lent the target entity is the amount (if any) determined by the Commissioner.
(2) In determining the amount of the payment or loan, the Commissioner must take account of:
(a) the amount the interposed entity paid or lent the target entity; and
(b) how much (if any) of that amount the Commissioner believes represented consideration payable to the target entity by:
(i) the trustee; or
(ii) any of the interposed entities;
for anything (assuming that the consideration payable equals that for similar transactions at arm’s length).
(3) The total of the amounts determined under subsection (1) for payments and loans in relation to which section 109XB applies because of the same present entitlement mentioned in paragraph 109XA(1)(c), (2)(b) or (3)(b) must not exceed the unpaid present entitlement mentioned in subsection 109XA(4).
Timing of payment or loan
(4) The trustee is taken under section 109XF or 109XG to have made the payment or loan at the time the interposed entity made the payment or loan mentioned in paragraph 109XF(1)(c) or 109XG(1)(c) to the target entity.
109XI Entitlements to trust income through interposed trusts
Entitlements through interposed trusts
(1) For the purposes of paragraphs 109XA(1)(c), (2)(b) and (3)(b), a private company is taken to be or to become entitled to an amount from the net income of a trust estate (the target trust) if:
(a) the company is or becomes presently entitled to an amount from the net income of another trust estate (the first interposed trust) that is interposed between the target trust and the company; and
(b) a reasonable person would conclude (having regard to all the circumstances) that the company is or becomes so entitled solely or mainly as part of an arrangement involving an entitlement to an amount from the target trust; and
(c) either:
(i) the first interposed trust is or becomes presently entitled to an amount from the net income of the target trust; or
(ii) another trust interposed between the target trust and the company is or becomes presently entitled to an amount from the net income of the target trust.
This section operates regardless of certain factors
(2) For the purposes of this section, it does not matter: