The 2016-17 Budget contained a proposal to “simplify” the management of Div 7A loans, and the policy mess which has evolved since that fateful day December 4th, 1997 when loans by private companies to shareholders or “associates” became liable to be deemed as unfranked dividends.
On 16 December 2009, the Commissioner followed up by treating Unpaid Present Entitlements (UPEs) from a trust to a private company beneficiary as ‘extended definition loans’. In the periods since, pre-4 December 1997 loans and pre-16 December 2009 UPEs were generally treated as being outside the scope of Div. 7A.
A promised feature of the proposed new law, is to simplify the “loans” scenario by rounding them all up and placing them into a post 30 June 2018 bucket, to be treated in a uniform and consistent way; significantly with an onus of repayment over a specified time frame.
Some of these “loans” are by now pretty long in the tooth. Are they statute barred? If so, what’s the effect? Are they indeed loans for Div 7A purposes?
These issues and more (such as the relationship to the debt forgiveness rules) are canvassed in the timely article: Forgiving Quarantined Div. 7A Loans & UPEs — TaxLore which notes that
A UPE is not traditionally considered to create a loan or other debt relationship, because it is created by a present entitlement that becomes the absolute property of the beneficiary (Tindon P/L v Adams  VSC 172; cf Chianti P/L v Leume P/L  WASCA 270; Gustode P/L v Ashley  FCA 250).
The inclusion of quarantined pre-1997 loans and pre-2009 UPEs into Div. 7A requiring repayment under the new Rule of 78 loan rules will renew investigations into forgiving or restructuring these amounts before 1 July 2018.
The complexity of this ‘simplification’ in practice is discussed more fully at taxlore.biz (see article link below). With the time available until commencement on 1 July 2018, it is essential that the issues be considered with a view to minimising the exposure to the restrictive requirements of the new rules, and maximise whatever flexibility exists beforehand.