• Small Business - Federal Budget 2019

Division 7A changes deferred

The Budget in 2016 featured promises by the Federal Government to improve the operation and administration of Division 7A of the Income Tax Assessment Act 1936 (‘Division 7A’). Three years and two pushed-back deadlines later and the Government is no closer to coming to a decision regarding these changes.

In this Budget, the Government announced that it has deferred the 2018-19 measure to clarify the operation of Division 7A from 1 July 2019 to 1 July 2020.

The Government released a consultation paper in October 2018 seeking feedback on their proposed amendments, the most controversial of which were the proposed changes to bring the quarantined Division 7A loans & Unpaid Present Entitlements (UPEs) into the tax net. The Government has acknowledged that the feedback they have received is enough to warrant further consideration.

BDO Comment

Ongoing delay in progressing the simplification of Division 7A means that uncertainty is increased for private companies and their associated entities. Due to the complexities of the existing law, and the impact on cash flow and operations, private groups ideally need certainty sooner rather than later so as to be able to properly identify and plan for the impact of the Division 7A changes.

Although the uncertainty is quite frustrating, there is a positive in that we now have an additional year to prepare for any changes, and in particular the proposed changes to the previously quarantined Division 7A loans and UPEs.

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