Div 7A: UPEs – sub-trust arrangements maturing in 2020-21 (Options 1 and 2)

On 30 June 2021, the ATO issued an updated version of Practical Compliance Guideline PCG 2017/13, on unpaid present entitlements (UPEs) and sub-trust arrangements.

By way of background, a UPE is not treated as a Div 7A loan if the funds are held on sub-trust for the corporate beneficiary’s sole benefit.

Taxpayers can determine the appropriate terms of the investment or can adopt one of the 3 safe harbour investment options in PS LA 2010/4:

• Option 1: invest the funds on an interest-only 7-year loan at the Div 7A benchmark interest rate
• Option 2: invest the funds on an interest-only 10-year loan at a prescribed interest rate or
• Option 3: invest the funds in a specific income-producing asset or investment.

As amended, PCG 2017/13 includes timelines for UPEs placed on a sub-trust on 15 May 2011 using Option 2 or on 15 May 2014 using Option 1. The following dates are particularly relevant:

• 14 May 2021 is the deadline for repaying the principal of the loan and final interest
• 15 May 2022 is the deadline for entering into a new 7-year complying loan agreement (if the principal has not been repaid in full) and
• 30 June 2022 is the due date of the first minimum yearly repayment under the new loan.