PS LA 2010/4 Division 7A: trust entitlements

On Thursday 14 October 2010, the ATO released a practice statement PS LA 2010/4. Its provisions apply from 14 October 2010.

The purpose of the practice statement is to provide practical guidance on the administrative aspects of the previously released taxation ruling TR 2010/3 (that was issued on 2 June 2010). The new statement supplies further guidance to the originally issued ruling, and allows for certain taxpayers to correct past situations that do not comply with the guidance without any penalties applying, if the action is taken in the approved form by 31 December 2011.

The Practice Statement
The practice statement provides the following additional guidance and concessions:

• It confirms that TR 2010/3 only applies to UPEs that arise on or after 16 December 2009.

• Loans do not arise if the UPEs are held on sub trust. (The initial ruling provided 2 options to evidence the entitlements being held on trust, and the practice statement provides an additional method).

• It provides for two self correction options for Section 2 loans whereby taxpayers can:

1) reclassify UPEs that have been incorrectly recoded as loans, and

2) bring all Section 2 loan balances into line for Division 7A compliance purposes by 31 December 2011 without having to obtain the ATO’s express approval for small business taxpayers.

For more information please contact one of our Tax Experts, Darren Shone on 02 4962 2616 or via dshone@lawlerpartners.com.au or Tina Louras on 02 9008 1404 or via tlouris@lawlerpartners.com.au