Private ruling: Division 7A Section 109C
Date of advice: 27 October 2015
Published: October 2015
Ruling period: Income year ending 30 June 2016 | Income year ending 30 June 2017 | Income year ending 30 June 2018 | Income year ending 30 June 2019
Date scheme commenced: 1 July 2015

Ruling: Q1: Is there a dividend under section 109C of the Income Tax Assessment Act 1936 in relation to the transfer of several properties to Taxpayer B from the XY Family Trust? | A1: No

Relevant facts and circumstances: The XY Family Trust (the Trust) was established on May 19XX. Taxpayer A is the appointer of the Trust. Company A is the trustee of the Trust. Taxpayer A and Taxpayer B hold one share each in Company A and are both directors of Company A. Taxpayer A and Taxpayer B are both beneficiaries of the Trust. The Trust possesses several real estate properties. As a result of a proposed matrimonial property settlement between Taxpayer A and Taxpayer B, Taxpayer B will renounce their rights as a beneficiary of the Trust and Taxpayer A will retain control of the Trust. Taxpayer B will have some of the properties transferred to them. From the settlement date Taxpayer B will accept sole liability and fully indemnify Taxpayer A in relation to all liabilities secured against or relating to the properties to be transferred to Taxpayer B. The matrimonial settlement will be made by way of a Consent Order by the Family Court pursuant to section 79 of the Family Law Act 1975 .

Relevant legislative provisions: Income Tax Assessment Act 1936 Division 7A | Income Tax Assessment Act 1936 Section 109C

Reasons for decision: Summary: Is there a dividend under section 109C of the Income Tax Assessment Act 1936 in relation to the transfer of several properties to Taxpayer B from the XY Family Trust? Division 7A is a specific anti-avoidance measure designed to prevent private companies from making tax-free distributions of profits to shareholders or their associates in the form of payments, loans or debts that are forgiven. Section 109C of the Income Tax Assessment Act 1936 (ITAA 1936) treats certain payments, loans and debt forgiveness made by a private company to shareholders, or associates of shareholders as dividends. The transfer of several properties will not be treated as a dividend under section 109C ITAA 1936 as the tax entity making the transfer is the Trust, not the private company. The private company is acting in its capacity as trustee pursuant to a consent order and therefore section 109C will not apply.