Australia

Division 7A is essentially an anti-avoidance measure aimed at preventing shareholders in private companies from accessing funds in the companies and using them for their own purposes, without paying the top-up tax (the tax differential between the personal marginal tax rate and the company tax rate).

With a personal tax system based on progressive tax rates, and a lowering of the company tax rate for SME businesses, the tax differential is becoming increasingly significant.  This increases the motivation for tax planning – and tax avoidance – and hence having a strong mechanism like Division 7A is key to that proper function of the tax system.

Except that Division 7A is not working how it was intended to.  Division 7A is overly complex, which can lead to poor compliance levels.  It also catches situations that aren’t within the intended scope of the provisions and fails to catch situations that should be caught.  These failings were clearly acknowledged in the Board of Taxation report.

All the Latest From Our Division 7A – Background Team

Do employee share schemes work for private businesses?

Posted By Greg Travers on 16/06/2021 02:32:24 am

Employee share schemes (ESS) are a great concept. They aim to align the interests of employees with the interests of shareholders, producing better outcomes for…

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Recent changes to legislation that will impact your 2021 tax planning

Posted By Braden Schwark on 25/05/2021 11:24:44 pm

It’s nearly the end of the financial year which means it’s time for businesses to prepare their tax and maximise concessions offered by the ATO.…

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Federal Budget 2021-22 | Key policies at a glance

Posted By William Buck on 11/05/2021 04:45:45 am

The 2021-22 Federal Budget has a focus on fiscal stimulus measures rather than austerity. In particular the Budget targets job growth, rebuilding the economy and…

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Federal Budget 2021-22 | 5 take-outs for SMEs

Posted By William Buck on 10/05/2021 04:19:50 am

1. Invest in capital assets Look at your planned capital expenditure. If your business needs to buy new plant and equipment, then doing so between…

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