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Just wondering who the lender and borrower should be on Div 7A Loan agreement for the UPE Loan in this scenario.
Family Trust B : received all franked dividend from the company A.
Company A (Bucket company) : received 80% of net income (including franked distribution) from Trust B
Individual beneficiary C and D : received 20% of net income (including franked distribution) franked distribution from Trust B
In my opinion, the lender is the company A and the borrower is the Family Trust B.
Existing Div 7A Loan agreement for that UPE loan was made between the family Trust and the individual and that agreement is prepared by the lawyer. That's why it makes me confused.
Can someone share your knowledge in this area?
ATO considers section 100A applies
The ATO considers that the following arrangement would constitute a reimbursement agreement:
Where this is found to be the case, 'the beneficiary shall, for the purposes of this Act, be deemed not to be, and never to have been, presently entitled to the relevant trust income.' - s100A (1) ITAA 1936
Thanks for your answers.
Unforunately, I am still confused.
What if the entitlment from the trust was not actually distributed and paid in cash, will Div 7A arise? If it arises, who should be the parties on the Div 7A Loan agreement. (The company and the trust?)
(Division 7A does not apply because the company’s entitlement is paid before it lodges its income tax return for the year in which the entitlement arose)
The key takeaway is that if 100A applies, the amount is not treated as an "entitlement" and is assessed at the trustee level (top tax rate). Since there is no "entitlement", there's no Div7A.
I would recommend getting proper tax advice which incorporates a full set of the facts in order to determine what the true outcome should be.