Distributions to Corporate Beneficiaries under attack

Just to throw some more information into the mix:

1. Unpaid present entitlements already in existence as at December 2009 will be protected and will not become loans under the new ruling (unless they were always loans by being labelled such in the accounts but I'd hope the majority of accountants weren't silly enough to do that!). It is only UPE's created after that date that will be potentially caught as loans.

2. They won't be labelled a 'loan' until the year following the year in which they are created so distributions for the 2009/10 won't be a loan until the 2010/11 year which gives until 15 May 2012 (most common due lodgement date for Trust returns) to do something about them (i.e. repay or change to commercial terms)

3. UPE's that are caught as loans can be put on Division 7a 'commercial' terms and repaid over 7 years (or 25 if secured by property) provided a minimum prescribed rate of interest applies and minimum annual repayments are undertaken. The minimum annual repayments can be cleared by dividends declared by the corporate beneficiary provided there's some mechanism to offset the resulting unpaid dividend against the company's UPE.

So no need to panic just yet and any problems are probably manageable :)
 
Hi,

I think the ATO has this one wrong; a family trust with a corporate trustee is a very common business structure for small business in Australia.

By forcing the trust to physically transfer the profit to the corporate trustee every year before 30th June and then converting that profit into a 7 year loan back into the trust, will destroy lots of small business, or make then unprofitable.

Just because a few dodge people were abusing the system, I don’t see why everyone should pay a heavy price; it’s been common practice for the UPE to be only ledger journal entry for many years with the amount of 30% company tax been paid and the rest left in the trust to actually make money.
In my business (online retail) in the last half of the year I will now have to sell down more than 50% of my stock to be able to cover the physical payment of the UPE to the trustee, only to have the money loaned back to trust 1st July.

Imagine after the seventh year how much bloody paperwork there would be looking after seven loans, as the interest is tax deductable the ATO gets no real benefit, besides a 30% slice of the interest payable to the company trustee if its left there as profit.

I really fail to see the ATO getting more income from me with a arrangement like this, because I rely on having stock to be able sell to make money, no stock = no profit, less stock = less profit, which means the ATO gets a smaller chunk, even after paying 30% tax on the interest.

I really believe the quicker this labour government gets removed the better, they forget it’s small business who employs the most people in Australia, and they seen to be always wanting that little bit too much from small business. The labour government does not understand that most small business owners and their partners work over 80-100 hours per week each and deserve every cent they earn or benefits they receive.

Anyhow this is my first post on this Forum, and I got to say what a great place to learn about wealth creation.

Regards

Stacey
 
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