Currently, the operation of Division 7A is limited to taxing payments, loans and other similar arrangements made or provided by a private company to its shareholders and their associates.  Where a shareholder or their associate is provided with free or discounted access to assets of the company (such as accommodation or a boat), the use of the assets will only be taxed where the individual provided with access to the assets is an employee and the benefit is subject to fringe benefits tax.

This provided a planning opportunity whereby access to these assets was provided to shareholders and their associates who were not employees, thus avoiding the operation of the fringe benefits tax provisions.

To counter these arrangements, shareholders of private companies and their associates will be required to pay for the use of the assets (determined by market value rates).  Where the asset is provided by the company for less than market value, the shortfall will be deemed to be a payment under the amendments to Division 7A.  This means the shareholder or associate will be assessed on this amount as a deemed dividend.

In a further announcement, the Treasurer said the operation of Division 7A is to be tightened through a series of technical amendments.  The forms of these amendments was not announced (they will be subject to consultation), although the Treasurer did point to amendments to ensure that corporate limited partnerships could not be used to avoid the operation of Division 7A.  There have been a variety of schemes in the marketplace designed to avoid Division 7A through the use of corporate limited partnerships in substitution of a private company.  Clearly, these planned amendments will seek to prevent these types of arrangements.