Robson Chartered Accountants Business & Finanical Advisors - Gosford - Central Coast - NSW

ATO moves the goal posts on unpaid trust entitlements

The ATO has moved the goal posts for Trusts with a Company beneficiary. If your Trust allocates a share of profit to a Company but doesn’t fully pay out that entitlement, this is now a problem in the ATO’s view.

Does this affect you?

The likely answer is: Yes.

It is common for a business to retain profits to fund working capital or invest in business growth. The ATO’s move effectively forces Trust’s to pay out in cash the profit for the year, or get caught in the web of Division 7A loans.

A Lose-Lose situation for business

Your choices are now:

• Pay out profit in cash: losing cash funds for working capital or to fund new investments;
• Have the unpaid profit entitlement be deemed a dividend: to be taxed again by the tax office;
• Enter a loan agreement to pay the profit entitlement over 7 years: with loan interest income taxable to the Company.

 Contact Robson Partners to find out how this affects your Trust and what solutions are available to you.