Private ruling: Division 7A
Date of advice: 10 March 2026
Published: 28 April 2026
Ruling period: 1 July 2022 to 30 June 2026
Date scheme commenced: 1 July 2022

Ruling: Q1: Will the payment for the balancing Subscription Amount for A Class Units by the Company occasion a deemed dividend for the purposes of section 109C of the Income Tax Assessment Act 1936 ('ITAA 1936') [1] ? | A1: No. | Q2: Will the Subscription Amount for A Class Units paid by the Company be a loan for the purposes of section 109D? | A2: No. | Q3: Will the Subscription Amount for A Class Units paid by the Company occasion any other deemed dividend pursuant to Division 7A? | A3: No.

Relevant facts and circumstances: Background facts and circumstances Prior to the settlement of the unit trust discussed below, the group of entities included the following entities ('the Group'): a. the Company; b. the Family Trust; and c. Nominees Co. Also prior to the settlement of the unit trust discussed below: a. the Company had significant retained profits; b. the Family Trust held capital reserves mostly in term deposits and loans to X and other entities in the Group; c. Nominees Co held significant retained profits, mostly in term deposits and intercompany loans. The retained profits and capital reserves of these entities were largely accumulated from after-tax gains made on the subdivision and sale of property holdings over the last decade. X was keen to reinvest the retained profits and capital reserves in a flagship asset that would generate a strong, but passive rental income stream, and which could be used to consolidate a strong commercial property portfolio for the benefit of his family and future generations. The Property On X XX XXXX, X signed a contract of sale as nominee for the purchase of the Property. The vendor was an unrelated third party. At the time of purchase, the Property was leased to an unrelated third party. In XX XXXX, the Tenant completed an extensive internal refurbishment of the Property, costing the Tenant circa X, leading to a renegotiation of the terms of the Lease and an extension on the terminating date of the Lease. The Tenant also has an option to extend the lease further. The Tenant has indicated that they will likely exercise their option at the end of the current term as the location of the Property offers strategic value given its location. The significant capital expenditure and most recent extension of the term of the Lease demonstrates the Tenant's commitment to continue occupation of the Property under the Lease. There is no intention for the Property to be sold for at least another 25 years, and any redevelopment opportunity is limited and unlikely to be undertaken. Acquisition structure for the Property and establishment of the Unit Trust The purchase price for the Property was $X ('the Purchase Price'). Initially, X intended to nominate the Family Trust as the purchaser of the Property at settlement. However, upon seeking legal advice, the following points were noted: ... In light of the above, X was advised that a unit trust structure for the Property would assist in achieving the investment strategy for the broader group. Accordingly, on X XX XXXX, the Unit Trust was settled via deed ('the Trust Deed'). On X XX XXXX, X nominated the Unit Trust as the purchaser under the contract of sale for the Property. The balance of the Purchase Price was paid by the Unit Trust to the vendor at settlement on X XX XXXX. The Unit Trust funded the balance of the Purchase Price as follows: a. subscription funds for fully paid Ordinary Units by the Family Trust; b. subscription funds for partly paid A Class Units by the Company; c. lent funds from the Company ('the Company Loan'), being an amount which also represents the unpaid portion of the A Class Units, d. lent funds from Nominees Co (Nominees Loan). The Unit Trust entered into a section 109N compliant 7-year loan for the Nominees Loan. The Unit Trust also entered into a section 109N compliant 25-year loan with the Company for the Company Loan. It is intended that the Company will offset its obligations to pay the balance of the Subscription Amount for its A Class Units against the Company Loan to the Unit Trust, plus any difference owing in consequence of minimum repayments having been met on the Company Loan ('the Proposed Transaction'). Unit Trust details The Unit Trust was settled via the Trust Deed. The relevant rights of A Class Units in the Trust as set out in the Trust Deed are as follows: ... The units on issue by the Unit Trust at the time of this Ruling are as follows: a. X Ordinary Units fully paid held by the Family Trust; and b. X A Class Units partly paid held by the Company. On X XX XXXX, X obtained a valuation report of the value of the Ordinary Units and A Class Units in the Unit Trust. ('the Valuation'). The Valuation provides the following opinion: a. that the A Class Units comprise a midpoint of X% of the total present value of the units in the Unit Trust; and b. that the Ordinary Units comprise a midpoint of X% of the total present value of the units in the Unit Trust.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 109C | Income Tax Assessment Act 1936 section 109D | Income Tax Assessment Act 1936 section 109J | Income Tax Assessment Act 1936 section 109N | Income Tax Assessment Act 1936 section 109ZD | Income Tax Assessment Act 1936 section 318

Reasons for decision: Summary: The payment for the balancing Subscription Amount for A Class Units by the Company will not be taken to be a dividend for the purposes of section 109C. | Detailed Reasoning - Division 7A: Division 7A is an integrity measure designed to prevent private companies from making tax-free distributions to shareholders and their associates. Subsection 109C(1) provides the following: A private company is taken to pay a dividend to an entity at the end of the private company's year of income if the private company pays an amount to the entity during the year and either: (a) the payment is made when the entity is a shareholder in the private company or an associate of such a shareholder; or (b) a reasonable person would conclude (having regard to all the circumstances) that the payment is made because the entity has been such a shareholder or associate at some time. Section 109ZD provides that 'associate' has the meaning given by section 318. In relation to a company, subsection 318(2) provides that the following entities are associates of a company ('the primary entity'): ... (d) a trustee of a trust where the primary entity, or another entity that is an associate of the primary entity because of another paragraph of this subsection, benefits under the trust; ... Subsection 109C(3) outlines the meaning of 'payment' to an entity for the purposes of Division 7A: (a) a payment to the extent that it is to the entity, on behalf of the entity or for the benefit of the entity; and (b) a credit of an amount to the extent that it is: (i) to the entity; or (ii) on behalf of the entity; or (iii) for the benefit of the entity; and (c) a transfer of property to the entity. 'Credit' or 'credit an amount' are not defined and therefore take their ordinary meanings. The Macquarie Concise Dictionary defines 'credit' to mean 'to enter upon the credit side of an account; give credit for or to; to give the benefit of such an entry to'. In determining that a private company credits an amount within the meaning of paragraph 109C(3)(b) if it releases all or part of an unpaid present entitlement ('UPE') that it is owed, Taxation Determination TD 2015/20 Income tax: Division 7A: is a release by a private company of its unpaid present entitlement a 'payment' within the meaning of Division 7A of Part III of the Income Tax Assessment Act 1936? ('TD 2015/20') is instructive as to the meaning of 'credit' in the context of subsection 109C(3). Paragraph 27 of TD 2015/20 states that in order to properly reflect the effect of the release [of a UPE] in the beneficiary's books of account, the beneficiary would make a credit entry in the amount of the UPE released. Paragraph 29 of TD 2015/20 goes on to state that the release of a UPE (that ought to be properly reflected by a credit entry in the private company beneficiary's books of account) is a credit of an amount that is typically for the benefit (whether in their own capacity or not) of the entity to whom the UPE is released. The release of the UPE would therefore be a payment within the meaning of subparagraph 109C(3)(b)(iii). Subsection 109C(3A) makes it clear that a loan to an entity is not a payment to the entity for the purposes of Division 7A. In the event that a private company has made a payment to a shareholder or associate for the purposes of section 109C, section 109J provides the following exception for a deemed dividend arising: A private company is not taken under section 109C to pay a dividend because of the payment of any amount, to the extent that the payment: (a) discharges an obligation of the private company to pay money to the entity; and (b) is not more than would have been required to discharge the obligation had the private company and entity been dealing with each other at arm's length. In Taxation Ruling TR 2014/5 Income tax: matrimonial property proceedings and payments of money or transfers of property by a private company to a shareholder (or their associate) ('TR 2014/5), the Commissioner states at paragraph 93 that paragraph 109J(b) requires consideration of whether the payment made is more than would be required to discharge the obligation had the private company and the entity who received the payment been dealing at arm's length. The Commissioner states further at paragraph 94 of TR 2014/5 that it is not sufficient to test what ought to be paid to discharge the relevant obligation; a test of what the relevant obligation would be, had the parties been dealing at arm's length, is also required. | Detailed Reasoning - Application to your circumstances - 109C: For the purposes of Division 7A, the Company and the Unit Trust will be associates within the meaning of section 318, and specifically paragraph 318(2)(c), because the Company benefits under the Unit Trust. Under the Proposed Transaction, the Company intends to offset the Subscription Amount against the Company Loan. This offsetting ought to be properly reflected by a credit entry in the Company's books of account for the benefit of the Unit Trust as the loan that the Unit Trust owes the Company is no longer payable. As a result of this offsetting, the Company will own fully paid A Class Units in the Unit Trust. Consistent with the Commissioner's view in TD 2015/20, this offsetting will constitute a payment within the meaning of subparagraph 109C(3)(b)(iii). Furthermore, as outlined under Question 2, payment of the Subscription Amount will not be a loan under section 109D. Therefore, the exception in subsection 109C(3A) will not apply. It is therefore necessary to consider the exception in section 109J. | Detailed Reasoning - Application to your circumstances - 109J: Section 109J will apply so that a payment by a private company will not be taken to be a deemed dividend under section 109C to the extent that: a. the payment discharges an obligation of the private company to pay money to the entity; and b. the payment is not more than would have been required to discharge the obligation had the private company and entity been dealing with each other at arm's length. Prior to the offsetting under the Proposed Transaction, the Company has an obligation to pay money to the Unit Trust for its subscription for A Class Units issued by the Unit Trust. Under the Proposed Transaction, this obligation is discharged by the payment outlined above. It is therefore necessary to consider whether the payment is more than would have been required to discharge the obligation had the Company and Unit Trust been dealing with each other at arm's length. Consistent with the Commissioner's view in TR 2014/5, it is necessary to consider what the relevant obligation would have been had the parties been dealing at arm's length. Notably, the purchase of the Property by the Unit Trust arose out of an arm's length dealing, whereby the Property was purchased from an unrelated third party at market value. The Unit Holders of the Unit Trust after the Proposed Transaction would be as follows: a. Ordinary Units fully paid held by the Family Trust; and b. A Class Units fully paid held by the Company. Upon payment of the Subscription Amount under the Proposed Transaction, the A Class Units held by the Company would represent approximately X% of the total capital invested into the Unit Trust. The Valuation opines that the A Class Units comprise a midpoint of X% of the total present value of the units in the Unit Trust, while the Ordinary Units comprise a midpoint of X% of the total present value of the units in the Unit Trust. After reviewing the Valuation, the terms of the Trust Deed, and the background facts and circumstances, the Commissioner is of the view that the amount paid for the A Class Units by the Company via the Subscription Amount would not be more than what would be required to discharge an obligation by the Company to pay the Unit Trust had they been dealing with each other at arm's length. | Detailed Reasoning - Conclusion: Accordingly, section 109J will apply such that the payment by the Company to the Unit Trust of the Subscription Amount will not be taken to be a dividend under section 109C. | Detailed Reasoning - Issue: 1 | Detailed Reasoning - Question: 2 | Summary: The payment of the Subscription Amount for A Class Units paid by the Company to the Unit Trust will not be a loan for the purposes of section 109D. | Detailed Reasoning - Division 7A: Subsection 109D(1) provides that a private company is taken to pay a dividend to an entity at the end of one of the private company's years of income (the current year ) if: (a) the private company makes a loan to the entity during the current year; and (b) the loan is not fully repaid before the lodgment day for the current year; and (c) Subdivision D does not prevent the private company from being taken to pay a dividend because of the loan at the end of the current year; and (d) either: (i) the entity is a shareholder in the private company, or an associate of such a shareholder, when the loan is made; or (ii) a reasonable person would conclude (having regard to all the circumstances) that the loan is made because the entity has been such a shareholder or associate at some time. 'Loan' is not defined and therefore takes its ordinary meaning. In Commissioner of Taxation v. Radilo Enterprises Pty Ltd , [2] Lehane and Sackville JJ noted the following about a loan of money: [3] A loan of money may be defined, in general terms, as a simple contract whereby one person ('the lender') pays or agrees to pay a sum of money in consideration of a promise by another person ('the borrower') to repay the money upon demand or at a fixed date. The promise of repayment may or may not be coupled with a promise to pay interest on the money so paid. The essence of the transaction if the promise of repayment...In essence then a loan is a payment of money to or for someone on the condition that it will be repaid. Referring to the quote above, Taxation Determination TD 2008/8 Income tax: if a private company makes a loan to a shareholder or their associate in an income year and the loan has not been fully repaid, what elements of the loan agreement need to be in writing for the purposes of paragraph 109N(1)(a) of Division 7A of Part III of the Income Tax Assessment Act 1936? ('TD 2008/8') notes that the essence of the transactions listed in subsection 109D(3) is an obligation to repay an amount of money. [4] The concept of repayment being necessary for the existence of a loan has been confirmed by the NSW Court of Appeal in the context of a share sale agreement and stamp duty. [5] While 'loan' is not defined, subsection 109D(3) provides that the following are loans for the purposes of Division 7A: (a) an advance of money; and (b) a provision of credit or any other form of financial accommodation; and (c) a payment of an amount for, on account of, on behalf of or at the request of, an entity, if there is an express or implied obligation to repay the amount; and (d) a transaction (whatever its terms or form) which in substance effects a loan of money. In Taxation Ruling TR 2010/3 Income tax: Division 7A loans: trust entitlements ('TR 2010/3'), which has now been withdrawn, the Commissioner noted that the phrase 'advance of money' suggests a payment of moneys ahead of a due date, or a payment in expectation of repayment or reimbursement. [6] In his leading judgment in Prime Wheat , Gleeson CJ held that a share sale agreement that allowed the purchaser to pay the balance of the purchase price over 20 years by instalments was not an advance of money, and therefore not a loan security, for the purposes of the NSW Stamp Duties legislation. While there was a debt, Gleeson CJ held that there was merely the granting of time to pay. [7] Notably, his Honour commented that this would constitute financial accommodation. [8] In Taxation Determination TD 2022/11 Income tax: Division 7A: when will an unpaid present entitlement or amount held on sub-trust become the provision of 'financial accommodation'? ('TD 2022/11'), the Commissioner notes that the provision of credit involves allowing time to pay a debt, and that a loan itself amounts to a provision of credit. [9] The Commissioner considers the provision of credit to be a narrower subset of a broader concept of financial accommodation. [10] | Detailed Reasoning - Application to your circumstances: For the same reasons as Question 1, the Company and the Unit Trust will be associates for the purposes of Division 7A. However, the Company's payment of the Subscription Amount will not be a loan for the purposes of Division 7A. There is no loan in accordance with its ordinary meaning; there is no agreement or promise by the Unit Trust to repay an amount to the Company, either upon demand or at a fixed date. The payment of the Subscription Amount represents a capital investment into the Unit Trust by the Company whereby the Company is issued A Class Units in the Unit Trust. The Subscription Amount is effectively consideration for the A Class Units. Although the Unit Trust will be required to pay the Company an amount upon redemption of the Company's A Class Units or the Unit Trust vesting, the amount which the A Class Units are redeemed for is not referable to the Subscription Amount. Instead, the redemption amount is calculated by a fair value determination by reference to the net assets of the Unit Trust at the time of redemption of the Unit Trust vesting. There is no guarantee or obligation for the Unit Trust to repay the Subscription Amount and it is effectively a return of capital. Furthermore, there is no loan within the extended meaning under subsection 109D(3). There is no 'advance of money' within the meaning of paragraph 109D(3)(a) as there is no payment of money by the Company ahead of a due date, or a payment in expectation or repayment or reimbursement. As noted above, while the Company's A Class Units can be redeemed upon redemption or the Unit Trust vesting, the repayment that the Company receives is an amount calculated with reference to the net assets of the Unit Trust, and not the Subscription Amont. For similar reasons, there is also no 'provision of credit' or 'financial accommodation' within the meaning of paragraph 109D(3)(b). Nor is there a payment of an amount for, on account of, on behalf of or at the request of an entity where there is an express or implied obligation to repay the amount for the purposes of paragraph 109D(3)(c). Finally, the Commissioner does not consider that the proposed transaction and the payment of the Subscription Amount by the Company effects a loan of money in substance to the Unit Trust for the purposes of paragraph 109D(3)(d). | Detailed Reasoning - Conclusion: There is no loan by the Company to the Unit Trust within the ordinary meaning of the word, or within the extended meaning under subsection 109D(3). | Detailed Reasoning - Issue: 1 | Detailed Reasoning - Question: 3 | Summary: The Subscription Amount for A Class Units paid by the Company will not occasion any other deemed dividend pursuant to Division 7A. After considering sections 109C and 109D in Question 1 and Question 2 respectively, the Commissioner does not consider that a deemed dividend will be occasioned by any remaining provisions in Division 7A. [1] All legislative references in this Ruling are to the ITAA 1936 unless otherwise specified. [2] 97 ATC 4151; (1997) 34 ATR 635. [3] Ibid, 97 ATC 4151, 4161; (1997) 34 ATR 635, 641. [4] TD 2008/8, paragraphs 25-7. [5] Prime Wheat Association Ltd v. Chief Commissioner of Stamp Duties Matter No Ca 40308/95 [1997] NSWSC 546; 97 ATC 5015 (' Prime Wheat '). [6] TR 2010/3, paragraph 85. [7] Prime Wheat Association Ltd v. Chief Commissioner of Stamp Duties Matter No Ca 40308/95 [1997] NSWSC 546; 97 ATC 5015, 5019. [8] Ibid. [9] TD 2022/11, paragraph 59. [10] Ibid, paragraph 58.