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Australia Providing Lodgment Deferral for Company Income Tax Returns Due to COVID-19 — Orbitax Tax News & Alerts

The Australian Taxation Office (ATO) has issued a release announcing that, as part of their response to COVID-19, the 15 May 2020 lodgment date for 2018-19 company tax returns has been automatically extended to 5 June 2020. In addition, the release provides clarification on what is required to avoid Division 7A consequences. Division 7A of the Income Tax Assessment Act 1936 is intended to prevent profits or assets being provided to shareholders or their associates tax free, by treating certain payments or benefits as deemed dividends.

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Division 7A and lodgment date

Companies

As part of our response to COVID-19, the lodgment day for 2018–19 company tax returns has been extended for many companies (the 'deferred lodgment day'):

  • Returns that were due on 15 May 2020 under the tax agent lodgment program have been automatically extended to 5 June 2020.
  • Companies may have received a later lodgment due date in response to direct requests for lodgement deferrals.

To avoid Division 7A consequences for certain recipients of payments or loans made by the company during the 2018–19 income year, a company must take the following actions before the deferred lodgment day (or the actual date of lodgment of their 2018–19 income tax return, if earlier):

  • Repay in full, or place on terms that comply with section 109N, a loan made by the company during that income year.
  • Convert a payment made by the company during that income year to a loan on terms that comply with section 109N.

If you place a loan on section 109N terms before the deferred lodgment date, the borrower will need to make their first minimum yearly repayment (MYR) by 30 June 2020. The Commissioner will soon be issuing further guidance for those affected by COVID-19 with MYRs due for the year ended 30 June 2020.

UPEs and sub-trusts

The date by which trust tax returns can be lodged has been extended:

  • For tax agents, 2018–19 income tax returns for trusts can be lodged by the 5 June 2020 concessional date provided your client pays any liability by that date.
  • The lodgement dates for other trust tax returns may have been extended in response to direct requests for extensions or lodgement deferrals.

In PSLA 2010/4 the Commissioner sets out an administrative practice for unpaid present entitlements (UPEs) of corporate beneficiaries. Under this practice the Commissioner accepts that there are no Division 7A consequences where funds representing the entitlement are placed on sub-trust for the sole benefit of that beneficiary before the lodgement date for the trust tax return. This practice is being adjusted for entitlements created in the 2018–19 income year so that the UPEs need to be placed on sub-trust by 5 June 2020, or any later lodgement date allowed by the Commissioner.

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