Just prior to Christmas, the ATO released TR 2009/D8 which sets out their opinion in relation unpaid present entitlements from trusts to corporate beneficiaries (commonly referred to as bucket companies).

The ruling suggests that in cases where there is an unpaid distribution entitlement owing to a corporate beneficiary and the trust is using those monies for other purposes and there is an agreement between the trust and the company not to call for those monies, the ATO will deem that unpaid entitlement as being a loan for Division 7A purposes, under the provision of financial accommodation definition.

 

This means that a loan agreement needs to be entered into and the amount paid across, with interest. For some taxpayers, who have been in business for a substantial time, this amount could be over $1 million.

 

This will have a massive impact for all businesses where a trust and corporate beneficiary is used.

 

The ATO ruling is currently in draft stage and the ATO are seeking comments from interested parties up until 12 February 2010. We can assure you that all professional bodies; both accountants and lawyers, are putting in submissions to try and get this ruling altered to reflect common practical approaches to business. We will keep you updated with any further changes to this.