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ATO Interpretative Decision

ATO ID 2011/33

Fringe Benefits Tax
Deemed dividend: no FBT on a Division 7A shareholder loan where distributable surplus is nil

FOI status: may be released

CautionCAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.


Issue

Will the paragraph (r) exclusion from the definition of 'fringe benefit' in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) preclude a loan from being a loan fringe benefit where the loan is taken to be a dividend, but the amount is reduced to nil in accordance with section 109Y of Division 7A of Part III (Division 7A) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Decision

Yes. The paragraph (r) exclusion from the definition of 'fringe benefit' in subsection 136(1) of the FBTAA will preclude a loan from being a loan fringe benefit where the loan is taken to be a dividend, but the amount is reduced to nil in accordance with section 109Y of the ITAA 1936.

Facts

The taxpayer is a shareholder and an employee of the private company employer.

The private company lent an amount to the shareholder in respect of their employment during the 2008-09 income year which has not been fully repaid before the private company's lodgment day for the year ended 30 June 2009.

The taxpayer was a shareholder at the time the loan was made.

The loan is not of a type that would come within Subdivision D of Division 7A of the ITAA 1936.

The private company's distributable surplus is nil for the year ended 30 June 2009.

Reasons for Decision

Fringe Benefits Tax (FBT) will apply to loan benefits provided to employees (as defined in subsection 16(1) of the FBTAA) that are otherwise fringe benefits.

The paragraph (r) definition of 'fringe benefit' in subsection 136(1) of the FBTAA states that a 'fringe benefit' does not include:

   anything done in relation to a shareholder in a private company (as those terms are defined in section 6 of the Income Tax Assessment Act 1936 ), or an associate of such a shareholder, that causes (or will cause) the private company to be taken under Division 7A of Part III of that Act to pay the shareholder or associate a dividend.

Under subsection 109D(1) of the ITAA 1936 an amount lent by a private company to a shareholder during the current year is taken to be a dividend for the purposes of Division 7A if the loan is not fully repaid before the private company's lodgment day for that income year, and Subdivision D of Division 7A of the ITAA 1936 does not otherwise prevent the private company from being taken to have paid a dividend to the shareholder.

Under subsection 109D(1AA) of the ITAA 1936 the amount of the dividend taken to have been paid is the amount of the loan that has not been repaid before the private company's lodgment day for the current year, subject to section 109Y of the ITAA 1936.

Section 109Y of the ITAA 1936 limits the total amount of dividends taken to have been paid by the private company under Division 7A of the ITAA 1936 to the company's distributable surplus as at the end of its year of income.

In this case the private company has made a loan to the shareholder which is taken to be a dividend under section 109D of the ITAA 1936, and the amount of the dividend is reduced to nil because the company has a nil distributable surplus for the year ended 30 June 2009.

However, the private company is still taken to pay a dividend to the shareholder under subsection 109D(1) of the ITAA 1936. It is only the amount of the dividend under subsection 109D(1AA) of the ITAA 1936 which is affected by the private company's distributable surplus.

Accordingly, the paragraph (r) exclusion from the definition of 'fringe benefit' in subsection 136(1) of the FBTAA precludes the loan from being a loan fringe benefit for the year ended 31 March 2010.

Date of decision: 3 November 2010

Year of income:Year ended 31 March 2010

Legislative References:
Income Tax Assessment Act 1936
   Division 7A
   Division 7A, Subdivision D
   section 6
   section 109D
   subsection 109D(1)
   subsection 109D(1AA)
   section 109Y

Fringe Benefits Tax Assessment Act 1986
   subsection 16(1)
   subsection 136(1)
   paragraph 136(1)(r)

ATO Interpretative Decisions overturned by this decision
ATO ID 2003/492

Keywords
Companies
Deemed dividends
Dividend income
Fringe benefits tax
Loan fringe benefits
FBT shareholder loans
Private companies
Private company distributions
Shareholder loans

Date of publication: 20 May 2011

ISSN: 1445-2782

 


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