ATO Allows Refinance of UPEs Placed on 7-year Interest Only “Sub-trust” Loans

August 14, 2017

The ATO has released guidelines (PCG 2017/13) which will allow trusts to refinance unpaid entitlements (“UPEs”) of corporate beneficiaries to the income of a trust that were converted to a 7 year interest only loan, where the principal component was due to be repaid either by 30 June 2017 or 30 June 2018.

Under the new guidelines, taxpayers will be allowed to convert the unpaid amount of the 7 year interest only loan to a Division 7A complying 7 year loan (i.e. the new loan must provide for principal and interest payments over the additional 7 year term, with interest charged at the prescribed benchmark interest rate).

The refinancing cannot be done on an interest-only basis or through the use of a 25 year Division 7A compliant loan, secured against property. The ATO will also not allow a refinanced 7 year loan to be subsequently converted to a 25 year Division 7A compliant loan as can currently be done with ordinary 7 year division 7A loans.

DAA Comment

The above concession allowed by the ATO will provide taxpayers with significant cash flow benefit, where a principal repayment was due in the 2017 or 2018 income years.
Please do not hesitate to get in touch with Daniel Allison & Associates if you would like assistance in applying the above concessions.