These changes will affect any private groups with a company that makes any loans to shareholders or their associates, other than where those loans are repaid in the same year in which they are made.
For some private groups, the focus should be on reviewing existing strategies.
For example, a private company may advance funds to a shareholder during the year and clear the loan with a dividend in the following year. If the change to the way interest is charged on Division 7A loans is made, this strategy may cease to be financially effective.
Businesses or assets, in particular those in trusts, that are financed through UPEs or corporate beneficiary strategies will need to find a new approach to funding.
For other private groups these changes could have substantial financial impacts. Older group with loans that pre-date Division 7A, or UPEs that pre-date the change in ATO policy, will need to focus on how these loans can be refinanced or repaid. Where the funds have been applied for private purposes, which is not uncommon, this could be particularly problematic.
A further issue will be for groups with 25-year loans, especially where these loans have only recently been entered into and so have a long remaining term.
The right actions to take will depend on the actual circumstances of the private group. For some, there will be planning opportunities and effective ways to deal with past issues. For others, the necessary approach will be more defensive, trying to minimise the adverse impact of these changes.
In all instances though, the best outcomes will be achieved by planning for the change well ahead of its 1 July 2019 implementation.