5 June 2009

Improving the Fairness and Integrity in the Tax System - Tightening the Non-Commercial Loan Rules: Public Consultation

Today I announce the release of a Treasury discussion paper on the Government's 2009-10 Budget decision to tighten the non-commercial loan rules in Division 7A of the Income Tax Assessment Act 1936.

Division 7A provides tax integrity rules designed to prevent private companies from making tax‑free distributions of profits to shareholders (or their associates). In particular, advances, loans and other payments or credits to the shareholders or associates are, unless they come within specified exclusions, treated as assessable dividends to the extent that the company has realised or unrealised profits.

The Government's announced changes extend the Division 7A rules so that 'payment' includes the use of company assets by a shareholder (or their associate) for free or at less than their market values.

The changes include amendments to prevent corporate limited partnerships being used to circumvent the non-commercial loan rules and technical amendments will be made to strengthen the operation of the rules.

The Treasury discussion paper provides interested parties with an opportunity to comment on the implementation details of this measure and to raise concerns over any potential unintended consequences.

The Government encourages interested parties to provide comments on the discussion paper by 3 July 2009.

The discussion paper is available on the Treasury website. A further round of consultation will occur on the draft legislation.

5 June 2009