Alright, friends, let’s talk tax. No, don’t run away! I promise this is actually interesting. There’s been a major court case—Commissioner of Taxation v. Bendel—that just threw a bit of a spanner (or a golden ticket, depending on who you ask) into the world of trusts, bucket companies, and Division 7A tax rules.
What’s the big deal?
For years, accountants and business owners have used trusts to distribute income to “bucket companies” (a fancy term for a company beneficiary).
The ATO has always insisted that if the trust distributed profits to a company, but didn’t physically hand over the cash, it counted as a loan.
And loans, under Division 7A, come with a whole lot of tax complications—basically, the ATO saying, “Aha! Gotcha! Pay up!”
But plot twist! The Full Federal Court has just ruled that UPEs (unpaid profit distributions) aren’t actually loans.
The ATO’s long-standing approach? Not correct. According to the court, just because a trust owes money to a bucket company doesn’t mean it’s the same as lending it money.
Boom.
What this means for you (if you have a bucket company)
This could be huge for small business owners and trusts that have been carefully walking the Division 7A tightrope. Here’s why:
- Some businesses might have been overcompensating. If your trust has been making unnecessary loan repayments or complying with Division 7A rules when it didn’t actually need to, this could mean a whole lot of admin (and possibly cash) that you didn’t have to worry about.
- If you copped extra tax, you might have options. Clients who’ve been taxed because of the ATO’s previous interpretation may now have a case for reviewing their situation (we can help with that, obviously).
- More flexibility for trust planning. Without the Division 7A headaches looming quite so large, there could be better ways to structure the taxing of profits within a business.
What Happens Now?
Well, we’re keeping an eye on the ATO, who probably aren’t super thrilled about this decision.
They might appeal or push for a legislative fix (classic move). So before you go making any grand financial decisions, hang tight—there could be more twists in this tale.
💡Final Thought:
As a client, if your structure involves a bucket company and you’re wondering what this means for you, we’ll be in touch once we have more details from the ATO. We’ll keep you updated as things unfold, and if there’s action to take, we’ll make sure you’re ahead of the game.
As always, feel free to reach out to one of our team if you have any questions.
– The team at PAL
Disclaimer: This article is here to give you general info, not specific advice for your unique situation. We can’t take responsibility for decisions based on it, so be sure to chat with your accountant or advisor first!
Have a question or comment?
If you have any questions or comments relating to this article (or any other accounting matter) please get in touch with us at [email protected] and we’ll be happy to assist you.
