Post-Implementation Review of Division 7A of Part III of the Income Tax Assessment Act 1936

Background

On 18 May 2012, the then Assistant Treasurer announced that the Board would undertake a post-implementation review of Division 7A of Part III of the Income Tax Assessment Act 1936, which was to be completed by 30 June 2013.  On 8 November 2013 the Assistant Treasurer announced an extension  to these terms of reference and extended its reporting date to 31 October 2014.

Extended Terms of Reference

From the Assistant Treasurer’s press release on 31 October 2014:

The Board of Taxation is currently undertaking a post-implementation review of Division 7A of Part III of the Income Tax Assessment Act 1936 (Division 7A).

Division 7A contains integrity provisions designed to prevent shareholders (or their associates) of private companies from inappropriately accessing the profits of those companies in the form of payments, loans or debt forgiveness transactions.

Division 7A is part of a broader tax framework in which private business structures operate.  Within this context the Board should:

• examine the broader taxation framework in which Division 7A operates including its interaction with other areas of the tax law;

• examine whether there are any problems with the current operation of Division 7A, that are producing unintended outcomes or disproportionate compliance and administration costs; and
• to the extent that there are problems, recommend options for resolving them so that, having regard to the policy intent of Division 7A and potential compliance and administration costs, the tax law operates effectively.

The Board’s report should take account of the revenue implications of various options and, where appropriate, suggest approaches that minimise any revenue cost.

In undertaking this review the Board should seek public submissions and consult widely.

The Board should report to the Government by 31 October 2014.

Discussion papers

On 20 December 2012 the Board of Taxation released its first discussion paper on the post-implementation review of Division 7A of Part III of the Income Tax Assessment Act 1936. The Chair of the Board of Taxation, Mr Chris Jordan, announced the release of the first discussion paper via a press release.

On 25 March 2014 the Board of Taxation released its second discussion paper on the post-implementation review of Division 7A of Part III of the Income Tax Assessment Act 1936.

The Chair of the Board of Taxation, Mrs Teresa Dyson, announced the release of the second discussion paper [PDF 1.19MB | DOC 723KB] via a press release. The Board developed this second discussion paper to invite submissions and facilitate stakeholder consultation on the issues raised in accordance with the extended terms of reference given for the review. The Board requested that submissions be made by 9 May 2014.

Consultation process

In undertaking this review, the Board consulted widely to provide all stakeholders with the opportunity to participate in the review. The Board received 19 submissions on the first discussion paper, including three confidential submissions and 18 submissions on the second discussion paper, including three confidential submissions.

The Board appointed a working group of its members comprising Mr Curt Rendall (Chair of the working group), Mr Keith James and Ms Elizabeth Jameson to oversee this review.

Board’s report

The Board completed its post-implementation review of Division 7A and provided its report to government on 12 November 2014.

Government response

On 4 June 2015, the Government announced the release of the Board’s report on its post-implementation review of Division 7A of Part III of the Income Tax Assessment Act 1936.

The Government adopted a number of the Boards recommendations in the 2016-17 Budget. These changes will provide clearer rules for taxpayers and assist in easing their compliance burden while maintaining the overall integrity and policy intent of Division 7A. It includes a self-correction mechanism for inadvertent breaches of Division 7A, appropriate safe-harbour rules to provide certainty, simplified Division 7A loan arrangements and a number of technical adjustments to improve the operation of Division 7A and provide increased certainty for taxpayers.

These changes draw on a number of recommendations from the Board of Taxation’s Post-implementation Review into Division 7A and will apply from 1 July 2018.

Further information on this review can be obtained from the Board of Taxation Secretariat on (02) 6263 4366 or at taxboard@treasury.gov.au.

Submissions received

Submissions received - Second round