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20/08/2010 Tightening the non-commercial loan rules

In the 2009-2010 federal budget, the Government announced its intention to apply new measure to ensure company shareholders pay their fair share of tax.

This measure involves extending the operation of the non-commercial loan rules in Division 7A of the Income Tax Assessment Act, 1936 to cover instances in which a shareholder uses company assets, such as real estate, a car or a boat for free or at a discounted rate. This ‘payment’ will now be deemed a dividend to be taxed accordinly.

This measure aims to remove the inconsistent treatment between employees and shareholders. While the use of company assets was taxed as a fringe benefit for employees, the same uses of the assets by shareholders would be tax free.

This way, the Government will ensure that shareholders pay their fair share of tax.

The non-commercial loan rules will also be further strengthened to ensure that corporate limited partnerships cannot be used to circumvent Division 7A.

For more information, refer to the Division 7A essentials, on the ato website.