Accounting Solutions for Property Investors

Is your company thinking about lending money to a shareholder or associate, or forgiving a loan it provided to a shareholder or associate in the past? If so, these arrangements might be captured under the Division 7A framework.

Division 7A consists of rules that private companies must follow when they lend money to their shareholders or associates. Its purpose is to stop private companies from providing tax-free benefits to their shareholders or associates.

When does a Division 7A issue arise?

A Division 7A issues arises when a payment or loan is made from a private company to one of its shareholders or associates.

Some examples of the typical types of transactions that may attract Division 7A are as follows:

• Loans or advances given to shareholders or their associates without a loan agreement.
• Payment of private expenses from the company’s bank account.
• When a private company forgives a debt owed by a shareholder or their associate.
• Providing use of company assets for less than their market value.
• Unpaid entitlements – This is where a company is entitled to receive a distribution from a family trust, but the actual payment is not made to the company, and the funds remain with the trust or are used by the trust, shareholders or their associates.

What happens if Division 7A is triggered?

Where Division 7A is triggered, the shareholder or associate who receives the payment, loan or forgiveness may be deemed to have received a dividend, potentially up to that specific amount.

This deemed dividend would be unfranked, which means that the shareholder or associate would essentially pay double taxation on company’s profits.

The double taxation happens because the company initially pays the tax on the profits earned within the company without the shareholder or associate receiving any franking credits for these payments.

The deemed dividend is then recognised in the shareholder or associates income tax return as an unfranked dividend and tax is paid on this amount at the shareholder’s or associate’s individual marginal tax rate.

Ways to prevent triggering a Division 7A deemed dividend?

These are some of the ways to prevent triggering a Division 7A deemed dividend:

1. Consider purchasing investments through a company, because company to company loans are not subject to Division 7A.
2. Put in place a complying Division 7A loan agreement.
3. Calculating the company’s distributable surplus.

The deemed dividend under Division 7A is capped by the company’s “distributable surplus”.

Are you interested in learning more about the strategies and requirements to properly manage your Division 7A loans?

Then please contact us today to learn more about how we can help you effectively manage your Division 7A exposures.

If you’ve ever wondered why some millionaires have gone bankrupt but still live a lavish life, it can have a lot to do with how they protected their wealth long before a crisis arose.

You obviously hope that you’ll never have a crisis to deal with. But you can never predict the future with certainty.

For instance, it’s not uncommon for some form of family dispute – such as a divorce – to jeopardize the family business…. and these days you don’t even have to be married. Sometimes these situations can seriously harm wealth that has been hard earned over generations.

When in business, there are known and simpler risks to protect against, such as business name risk. There are also the potentially devastating ones like mishandling ownership of intellectual property. Then there are the unknown risks.

You have the opportunity to use strategies to protect your business and family’s wealth. The key is to proactively make this investment in protection early – since waiting until a crisis is on the horizon is often far too late.

Please, if you’re in business or about to go into business, seek out professional help to limit your exposures.

This is something we take great pride and care in, and would be delighted to help you with.

When considering property investment within a Self-Managed Superannuation Fund, there are several key factors to keep in mind.

The first thing a prudent trustee will consider is the suitability of owning real estate in the SMSF. You need to evaluate whether the SMSF has enough funds to justify the annual compliance costs, which typically start around $3,000 and increase from there, especially when borrowing is involved. A balance of $300,000 is often considered the minimum, but this is just one factor.

The Australian corporate regulator, ASIC, has developed case studies which we link to on our website. Generally, it’s advisable to seek financial advice from a licensed advisor to help assess suitability.

Assuming you determine it is suitable to purchase real estate in a SMSF, you will need to ensure the rules of the fund permit this. The Super Laws broadly allow you to use debt to acquire real estate, but the conditions are strict. You will need to use a “Limited Recourse Borrowing Arrangement”, and the property must be registered in the name of a custodian using a Bare Trust.

The money can be borrowed from a third party, such as a bank, or from a related party. Regardless, the terms must always be at ordinary market rates and conditions.

If investing in property through your SMSF is something you’d like to pursue, we can help with accounting solutions.

If you find yourself in a tax dispute, you’re going to want have an experienced winner by your side.

Munro’s have those wins.

Whilst we’re always doing our best to prevent a tax dispute in the first place, sometimes you might find yourself defending in an audit, objection or tribunal situation.

In our experience, very few of our clients are audited. We’re confident this is because we have a solid reputation for doing things the legal way.

Since audits are few and very far between, our clients immediately have peace of mind. They get on with taking care of their business, rather than worry about a potential audit.

When we do see an audit, it’s usually a high wealth review. Once your business and/or wealth is around $50 million plus, you’re likely to be pulled into the regular high wealth review program.

Our role in the process is to sit between you and the ATO, finding out what the ATO wants and helping you put the replies together to get them off your back as soon and as painlessly as possible. It’s a strategy we excel at.

There comes other times when you might need to object to a tax assessment or decision. In these instances, we use our experience and research techniques to consider the avenues to success, and where we determine a successful outcome is realistic, we help you throughout the objection process.

Over the years, our clients have saved thousands upon thousands of dollars due to successful objections.

In the extremely rare instances that an objection is not successful, but we feel confident you have been wronged by the outcome, we have the option to go to the Tribunal.

We’re limited by what we can say here, due to confidential settlements. What we can say, is that if you want to have an experienced winner by your side, then you’ll have that with us.

So, what’s it like being a client of Munro’s? You ordinarily don’t have to worry about tax disputes because we legally minimise your taxes and seldom experience ATO audits. In the cases where an audit, objection or Tribunal situation arises, you have the winning experience by your side.

Munro’s helps people with 12 distinct stages of life, which not only includes accounting for businesses and tax returns, but also estate planning and estate administration.

Estate planning is the process of planning for death with regards to financial affairs. It isn’t something that should only be acted upon in later years of life, but rather something all adults should be on top of. It’s about preparing your financial affairs for the inevitable, ensuring your wishes are respected, and your loved ones are protected.

One of the first steps is understanding the importance of having a Will. Without one, State law decides who inherits your wealth, which might not align with your wishes. With a Will and appropriate estate planning, you can ensure your assets go to the people you choose, together with achieving tax optimisation.

• Depending on your circumstances, there may be much to consider for your estate plan. Such as:
• Choosing an Executor – the person or people responsible for your deceased estate.
• Who do you want to get your assets? Do you give specific assets to specific beneficiaries?
• What happens if a beneficiary dies before you, who gets it then?
• What are the implications of owning property in joint tenancy as opposed to tenants in common?
• How is your superannuation distributed following your death? Superannuation may skip the deceased estate and not be subject to your Will if appropriate death benefit nominations are not active.
• How do you deal with who gets family trusts, companies and other entities if you have them? Control of these entities may or may not be effected through a Will.
• Do you need to consider bloodline clauses and a family constitution to protect your heirs?
• Have you protected beneficiaries in case of bankruptcy, divorce, legal dispute, drug addiction or mental illness?
• Deciding the age at which children inherit.
• Is it appropriate to include a testamentary trust? If so, one trust for each beneficiary or just one trust for all? Is there flexibility for some to opt in and others to opt out?
• Addressing loans and gifts made during your lifetime.
• Planning charitable donations for tax efficiency.
• Understanding tax implications for shares, real estate and other investments. Will your home continue to be tax free? Will the Executor be able to access the necessary records to appropriately lodge tax returns? Are there foreign investments & foreign taxes to consider?
• If you have exotic investments such as cryptocurrencies, gold and collectables, will your Executor be able to access them?
• Have you arranged EPAs, EPGs and Advanced Health Directives?
• And, should you already be implementing proactive tax mitigation strategies?

The more complex your circumstances, the more vital it is to have a well-thought-out estate plan.

At Munro’s, we provide professional assistance to clients when it comes to tax-effective estate plans tailored to their needs.

If you need help with estate planning, please reach out to us. We’re here to help ensure your financial legacy is secure and your loved ones are taken care of.