TAX TIP #7: DIVISION 7A | 17 YEAR ARRANGEMENTS

Facts

Trust T resolves to distribute income of the trust to Company C.

However, Trust T requires those funds for the business generally.

Question

How long can Trust T retain those funds?

Answer

17 years.

Tax Tip

1. Ensure the funds are an unpaid present entitlement (UPE).

2. Arrange for a properly documented sub-trust arrangement.

3. In accordance with PS LA 2010/4, the sub-trust arrangement can be for ten (10) years and interest-only payments.

4. At the end of the sub-trust arrangement, arrange for a complying Division 7A seven (7) year loan agreement. Note, this requires principal and interest payments.

5. The sub-trust arrangement and complying Division 7A loan agreement total 17 years.

Note: the above will not be available if the proposed changes to Division 7A are legislated. Nonetheless, we recommend you implement the sub-trust arrangement as the proposed Division 7A changes will convert such arrangement to a 10 year P&I arrangement. Conversely, without the sub-trust arrangement, and therefore the default is a seven (7) year P&I arrangement, the proposed changes do not extend any existing 7 year arrangements

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