Budget 2016: Division 7A tax arrangements set to be revamped

Small business operators and their tax advisers are the target of measures included in this year’s budget to improve the operation and administration of the Division 7A tax rules.

Division 7A of the Income Tax Assessment Act is often cited as one of the more problematic tax provisions affecting private companies.

The anti-avoidance measures apply to payments, loans and debt forgiveness by private companies to shareholders or associates.

According to budget documents, the government will make “targeted” amendments to Division 7A in a bid to provide “clearer rules for taxpayers and assist in easing their compliance burden”.

The changes will include a “self-correction mechanism” for inadvertent breaches, safe harbor provisions to “provide certainty”, simplified Division 7A arrangements for loans, along with several unspecified “technical adjustments”.

The government said the changes are based on recommendations from a review conducted by the Board of Taxation and will come into effect from July 1, 2018.

The changes are listed as having an “unquantifiable cost” to government revenue over the forward estimates.

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