What the Federal Budget means for SMEs? PART 1

taxabull — Fri, 15 May 2009 22:49:00 +0000

This is the first of a series of articles on the impact of the recent May 2009 Federal Budget on small-medium enterprises (SME) in Australia.

DIVISION 7A – PERSONAL USE OF COMPANY-OWNED ASSETS (CARS, BOATS, HOLIDAY HOMES, ETC)

Division 7A applies where the business is operating under a corporate structure.

Div 7A basically says that any monies withdrawn by individual owners should be treated as a “deemed dividend” unless it can be proven that it is a “loan” with an appropriate interest rate and documentation.

The government has indicated that it is thinking of including the personal use of company assets as an infringement of Div 7A as well.

Example

Say, an individual owner uses the company-owned car on the weekends (ie. 2 out of the 7 days of the week).

The new rule says that 2/7 of the “market value” of the car use should be considered a “payment” to the owner as per Div 7A.

So, proper documentation needs to be drafted to show that the “personal use” portion of the car is a “loan” and not a dividend payment. This is regardless of the fact that there has not been any real CASH movements.

There will issues with how the “market value” of the use of the assets will be calculated, etc.

SUMMARY

We will update everyone as soon as the new guidelines are released.

But, in summary, if you use your company assets for personal purposes, it may now fall under Division 7A. This includes vehicles, housing, and other assets.

This will mean that some SMEs may have to speak to their tax/legal advisers to re-evaluate their business structures.

END OF PART 1

OF THE SME BUDGET SERIES

CLICK HERE FOR PART 2

From the AusTax team.

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Taxabull » div 7a

What the Federal Budget means for SMEs? PART 1