Margin Scheme, Division 7A, Investment Trusts Withholding Regime & FBT Rates

Interim Decision Impact Statement – Bendel

The ATO has also issued an interim decision impact statement in response to the Full Federal Court’s ruling in the Bendel case (Commissioner of Taxation v Bendel [2025] FCAFC 15). This case addresses whether a private company’s failure to demand payment for entitlements to income from an associated trust constitutes the provision of ‘financial accommodation’, and, as such, qualifies as a loan under section 109D of the Income Tax Assessment Act 1936.

Since late 2009, the ATO has maintained that unpaid present entitlements (UPEs) owed by a trust to a company can be treated as loans for Division 7A purposes. This can lead to a deemed unfranked dividend for tax purposes if appropriate steps are not taken to prevent it, even if the trust does not provide funds to the company’s shareholders or their associates. However, both the AAT and the Full Federal Court have ruled that this interpretation is incorrect and that a UPE balance should not be classified as a loan under Division 7A. In summary, the ATO’s decision impact statement confirms:

• The ATO will administer the tax rules according to TD 2022/11 until the result of the High Court appeal process is known.
• The ATO will hold processing changes, private rulings and objections until the appeal process is finalised.

Margin Scheme Applies Separately for Each Freehold Interest

The ATO has released an Addendum to GSTR 2006/6, clarifying the interpretation of the term “improvements on the land” within the context of phrases like “improvements on the land,” “no improvements on the land,” or similar expressions in Subdivision 38-N and Division 75 of the GST Act. This Addendum updates GSTR 2006/6 to align with the Full Federal Court’s ruling in Commissioner of Taxation v Landcom [2022] FCAFC 204, which determined that the margin scheme provisions in the GST Act apply individually to each freehold interest in land, even when multiple freehold interests are supplied as a single land parcel.

Division 7A and Section 109R

The ATO has issued a draft Taxation Determination outlining the Commissioner’s views on sections 109R and 109T of Division 7A in the ITAA 1936. Section 109R aims to prevent shareholders from circumventing Division 7A by repaying a loan with another loan from the same entity. According to Section 109R, payments will not be considered if a reasonable person would conclude that the entity borrowed, or intended to borrow, an equal or larger amount from the private company to make that payment.

Section 109T expands the application of Division 7A to loans and payments that are made indirectly through interposed entities. The Australian Taxation Office (ATO) addresses two related issues:

1. Section 109R may disregard specific loan repayments made to a private company if the entity making the repayment is considered to have obtained a loan from the company through the interposed entity rules outlined in sections 109T and 109W of the Income Tax Assessment Act (ITAA) 1936.
2. When a private company is deemed to have made a notional loan under sections 109T and 109W of the ITAA 1936, section 109R can also apply to disregard certain repayments when calculating how much (if any) of that loan has been notionally repaid.

Further, section 109R can apply to disregard:

• An actual loan repayment where the repaying entity is taken to have received a loan from the private company, which is the result of the interposed entity rules in sections 109T and 109W, and
• A notional loan repayment is otherwise taken to have been made under subsection 109W(3).

Restructures and Managed Investment Trusts Withholding Regime

A tax alert has been issued by the ATO to notify taxpayers that it is currently reviewing arrangements that seek to take benefits of the MIT withholding regime inappropriately through the restructuring of inward investment structures.

The ATO is focused on arrangements that involve restructuring an existing trust or other inward investment structures to improperly gain access to the MIT withholding regime (which includes deemed CGT treatment). This concern extends to situations where such a restructure is associated with the disposal of trust property or assets held by entities that the trust controls.

Life and Remainder Interests – Exceptions for Granny Flat Arrangements

An Addendum to TR 2006/14 has been issued by the ATO, which outlines the CGT consequences of creating life and remainder interests in property and subsequent dealings in those interest.  

The Addendum amends TR 2006/14 to add exceptions in the CGT events for granny flat arrangements which are eligible for concessional CGT treatment. The creation or termination of an eligible granny flat arrangement will be exempt from any CGT events per Division 137 of the ITAA 1997. The Addendum applies from 12 March 2025.

PAYG Withholding Rate for External Administrators or Trustees of Bankrupt Estates

A draft legislative instrument has been made to replace the 2015 instrument, PAYG Withholding Variation: Variation of the amount to be withheld from certain payments made by external administrators and trustees of bankrupt estates.

The instrument adjusts the withholding rate for external administrators or trustees managing a bankrupt estate under the pay-as-you-go (PAYG) system for specific payments to employees of the entity they oversee. While the draft instrument functions similarly to the 2015 version, it changes the withholding rate from 34.5% to 32%. This adjustment is set to take effect on 1 July 2025.

FBT Rates of Private Use of Vehicles Other Than Cars

The ATO has issued TD 2025/1 which offers the rates to be applied if the cents per kilometre method is utilised to calculate the private use of a motor vehicle other than a car for the FBT year starting from 1 April 2025.

Reasonable Food and Drink Expenses for LAFHA

The Australian Taxation Office (ATO) has released Tax Determination TD 2025/2, which outlines the reasonable amounts for food and drink expenses for workers receiving a living-away-from-home allowance (LAFHA) for the fringe benefits tax (FBT) year starting from 1 April 2025. This determination applies to employees both within Australia and those working overseas. The specified amounts are considered reasonable for substantiation purposes. If an employee’s total food and drink expenses do not exceed the amount deemed relevant by the Commissioner, those expenses do not need to be substantiated under section 31G of the FBT Act.