William Buck Australia
As a fully integrated firm of Chartered Accountants and advisors, William Buck provides a complete solution. Putting you at the core of the business, our advisors work together to ensure that careful consideration is given to your business and personal wealth affairs.
Working closely with you and your team, our Business Advisors can help you plan and implement contemporary business strategies and practices to meet your business’s full potential.
Our commercially minded tax specialists offer clear, responsive advice to manage your tax risk, address local and international issues, and develop strategies to optimise your tax position.
Our audit team has extensive experience in a range of engagements, giving stakeholders independent and objective assurance on financial information, transactions and processes.
Our Corporate Advisory team provides objective, strategic and commercial advice across a broad range of business issues. Our work spans the breadth each engagement from the origination of ideas to managing the transaction process, valuation and structuring.
Our highly experienced team of liquidators and trustees use their extensive expertise to assist in times of financial distress, achieving the best outcome for all stakeholders.
By understanding not only what you want to achieve but why it’s important, our wealth advisors can create strategies attuned to your key priorities. The end result is a plan focused on your life goals.
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William Buck has a team of professionals with specialist experience and know-how on a range of industry sectors.
Our advisors understand the risks and opportunities unique to the agribusiness sector. Taking a strategic view of your operations they provide relevant guidance and advice.
Assisting public and private schools, vocational colleges, universities and private training providers, our education specialists provide timely and valuable assurance services together with strategic, financial and management advice.
Our Government and public sector team has substantial experience in assisting all levels of government to review their structures and develop strategies, in line with relevant legislative requirements and accounting and audit standards.
Working with over 1,600 clients in the health sector, our advisors help practitioners and health care corporates achieve their business and personal goals
Our hospitality and tourism team has a working knowledge of the industry which, when combined with our technical knowledge, can assist you in reaching your commercial goals.
By staying on top of changes in the manufacturing sector, our industry experts provide relevant and timely guidance to a broad range of manufacturing business.
Our mining and energy team has the experience and resources to help start-ups, developing businesses and well-established companies to meet their commercial goals.
Integrity and transparency are at the heart of the best Not for Profit organisations. These values re shared by our dedicated Not for Profit team, which helps entities to establish to improve performance and develop strategies for long-term growth.
Our advisors understand the challenges and opportunities facing the professional services sector first hand. This experience together with our expertise helps to determine your strategic objectives and provide concise, relevant advice to help you achieve your goals.
Our property and construction team assist on a wide range of assignments from property development to construction and large infrastructure projects. Their diverse experience, technical expertise and commercial know-how to help you tackle the important issues.
Our retail and wholesale team works with a variety of businesses from family owned operations to franchises and larger chains, to provide advice and guidance on the issues that count.
With the skills to help tech companies grow from startup to exit – we provide tailored tech company solutions, supported by access to a range of specialists across numerous service lines and industries.
Our transport and distribution team works with businesses to review their operations, improve efficiency and productivity and ensure compliance with the latest regulatory developments.
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We work with individuals, businesses and community organisations with a particular focus on the mid-market. Drawing on our extensive experience, our advisors will challenge your thinking and re-frame problems to understand their root-cause.
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Life as a CFO can be complex, exciting and demanding. Combining technical excellence with decades of working closely with and listening to the needs of CFOs, our advisors understand the competing demands of your role.
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We create and implement personal wealth plans and tax strategies that give our clients greater certainty that their financial and personal goals will be met.
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By TODD WANT
DIRECTOR, TAX SERVICES
The Division 7A laws have been in place for more than 15 years now and are encountered on a regular basis by many practitioners. Despite this implied familiarity, ATO audits often result in significant adjustments being made on the basis that Division 7A has been incorrectly applied. This article highlights four areas where practitioners commonly make mistakes when applying Division 7A to their clients’ circumstances.
Division 7A applies where there is a loan, payment or the forgiveness of a loan to a shareholder or an associate of a shareholder of a private company.
In most cases, practitioners readily identify and correctly deal with Division 7A loans to individuals.
However, the definition of an ‘associate’ is very broad and it will generally include a trust under which a shareholder can benefit. This will mean that Division 7A can apply to loans to discretionary trusts and unit trusts in the family group.
Importantly, given the broadness of the definition, Division 7A may also apply to loans to trusts that would not ordinarily be considered part of the ‘family group’.
For example, a loan to a unit trust in which the family and a number of unrelated persons hold the units may be subject to Division 7A. We have encountered numerous instances where unrelated parties have established a unit trust to undertake a property acquisition or development. Commonly, the funding for the trust is provided by loans from companies controlled by each of the families. Often this will result in a Division 7A loan to the unit trust, with deemed dividends flowing to the unit trust if the loans are not identified and dealt with appropriately. This may result in unit-holders being taxed on their share of the deemed dividend, even where the loan was not from a company that they own or control.
From a practical perspective, each year practitioners should review financial statements of their clients to identify loans to or from companies. As a starting point, it may be prudent to assume that all loans involving a company are subject to Division 7A unless an exemption applies. While company-to-company loans in themselves are not subject to Division 7A, the interposed entity provisions can apply depending on where the borrowed monies flow to.
In many cases where there are multiple loans within a group of entities, practitioners will attempt to ‘tidy up’ the loan balances by consolidating multiple loans into one net amount. While doing this may make the financial statements more presentable, in some cases it may result in new Division 7A loans being made within the group or ‘refreshing’ loans that may not have previously been subject to Division 7A.
To prevent unexpected outcomes, care should be taken to identify and fully consider the effect of each reallocation or reassignment being performed.
Where a Division 7A loan has been made, certain actions must be taken to prevent a deemed dividend arising. Such actions include:
If a written loan agreement is put in place, annual repayments of principal and interest are required to prevent a deemed dividend arising in a later income year.
In some cases, practitioners will attempt to satisfy repayment obligations by merely ‘debiting’ a new loan in the books of the company and ‘crediting’ that amount to Division 7A loans that were made in earlier income years. Alternatively, a client may withdraw cash from the company’s bank account (as a new loan) and use that cash to repay a loan that was made in an earlier income year.
In either case, when determining whether a loan has been repaid (in full or in part) such transactions would be ignored and they would not be counted as repayments to the company. A deemed dividend is likely to arise if the minimum repayment obligations are not met.
If a Division 7A issue is not dealt with appropriately, a deemed dividend may arise. Importantly, the deemed dividend is taken to have been paid to the person or entity who received the loan or payment. This is the case even if that person or entity is not a shareholder of the company.
Where a loan or payment has been made from a private company, it is important to ensure that the correct borrower (or payee) is recorded in the financial statements of the company, in addition to other books and records of the company (including working papers and loan agreements). In the event of an ATO audit, this information will become relevant in determining who will be taxable on any deemed dividends imposed.
Division 7A continues to be an area of focus for the ATO. In recent years the Tax Office has had success in reviews and audits where practitioners have failed to recognise that Division 7A has very broad application beyond simple loans from companies to individuals. Practitioners should therefore be alert in reviewing all private companies to identify potential Division 7A issues.
Should you have any queries about Division 7A, please contact your local William Buck advisor.