Federal Budget 2018-19 | Private taxation

By admin - May 8, 2018

With effect from 8 May 2018, the Government will prevent partners in a partnership from accessing the CGT small business concessions when disposing of their rights to partnership income to an associated entity.

Read: Access full Federal Budget 2018-19 review here

Integrity rules dealing with assignments of partnership interest

Whilst the details are currently limited, the Government announced the CGT small business concessions may no longer be available to partners of partnerships to reduce or eliminate a capital gain as a result of the assignment of a right to the future income of a partnership. The Budget announcement stated there will be no changes to the CGT small business concessions themselves, indicating that a specific integrity provision is likely to be introduced to address the Government’s concerns. 

UPEs to be treated as loans under Division 7A

Unpaid present entitlements (UPEs) will be treated as loans under Division 7A, with effect from 1 July 2019. Other previously announced measures regarding Division 7A have also been delayed, commencing from 1 July 2019.

The announcement is silent regarding whether this measure will be limited to new UPEs created on or after 1 July 2019, or whether it will also capture pre-existing UPEs still on foot as at 1 July 2019. We note that existing UPEs may include both pre-16 December 2009 UPEs, as well as post-16 December 2009 UPEs placed on sub-trust arrangements.

Furthermore, the announcement is unclear about the date by which the UPE must be repaid or placed on complying loan terms. With regard to the current law and administrative practices, this date could be either the lodgement date for the tax return of the income year in which the present entitlement is first created, or possibly the lodgement date for the following year’s return.

This measure will result in significant top up tax incurred by small businesses owners operating through trusts (utilising corporate beneficiaries). This will be the case even where 100% of the business profits are reinvested in the business. It is therefore disappointing this measure will not be introduced together with an exception for ‘otherwise deductible’ business loans.

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