The Government has indicated that it proposes to tighten the rules in relation to the taxation of benefits provided to shareholders or associates of a private company.
The division 7A deemed dividend rules will be expanded to include deemed payments by way of a licence or right to use real property and chattels, such as cars, boats and real estate. The move serves to reduce the potential for private companies to allow their shareholders or associates to use such company assets for free, or at less than their arm’s length value without paying tax. The measure is intended to provide greater equity in treatment between the shareholders of private companies on the one hand, and employees on the other, where the same use of the asset by an employee would attract FBT.
The Government has also signalled that several other technical amendments will be implemented to strengthen division 7A. A key item focuses on ensuring that corporate limited partnerships cannot be used to circumvent its operation.
These new measures will become effective from the 2009-10 income year.