While Division 7A of the ITAA 1936 has been around for some time, the ATO has recently seen fit to remind taxpayers about its operation and effect.

Specifically, the ATO has noted that:

  • it can apply when a private company provides a payment or benefit to a shareholder or associate through another entity or
  • if a trust has allocated income to a private company but has not actually paid it, and the trust has provided a payment or benefit to the company’s shareholder or their associate.

Furthermore, the ATO noted that a Division 7A deemed dividend is generally unfranked and it doesn’t apply to amounts that are assessable to the shareholder or their associate under other parts of the income tax law, such as normal dividends or director’s fees.

This recent update could be interpreted as a reminder that Division 7A is under the ATO’s spotlight or perhaps an indication that long awaited changes to Division 7A are imminent.