ATO: Division 7A and concern with unit trust arrangements

February 24, 2022
The ATO have raised concerns about a number of arrangements involving unpaid present entitlements and unit trusts that may have implications under Division 7A.

The ATO have identified cases where a private group seeks to extinguish unpaid present entitlements (UPEs) or avoid obligations under Division 7A, by implementing an arrangement where a private company subscribes for units in a unit trust. The unit trust may then provide payments or loans to other entities within the private group.

These arrangements have attracted ATO’s attention, as they may give rise to various income tax consequences, such as the application of:

  • Division 7A of the ITAA 1936
  • Section 100A of the ITAA 1936
  • Part IVA of the ITAA 1936.