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Private company clients who receive payments, benefits or loans from their private companies need to ensure compliance with their additional tax obligations (which are often referred to as their ‘Division 7A’ obligations).
There are multiple ways in which business owners may access private company money, such as through salary and wages, dividends, or what are known as complying Division 7A loans.
Division 7A is an area where the ATO sees many errors and the ATO is currently focused on assisting taxpayers in managing their obligations when receiving payments and benefits from their private companies.
In this regard, the ATO has recommended that business owners do the following:
- keep adequate records;
- properly account for and report payments and use of company assets by shareholders and associates; and
- comply with rules around Division 7A loans.
Understanding these Division 7A obligations is essential in order to:
- make informed decisions when receiving private company money and using private company assets; and
- avoid unexpected and undesirable tax consequences.
Businesses that pay contractors to provide certain services may need to lodge a Taxable Payments Annual Report (TPAR) by 28 August each year.
From 22 March, the ATO will apply penalties to businesses that:
- have not lodged their TPAR from 2023 or previous income years;
- have received three reminder letters about their overdue TPAR.
Taxpayers that do not need to lodge a TPAR can submit a ‘non-lodgment advice form’. Taxpayers that no longer pay contractors can also use this form to indicate that they will not need to lodge a TPAR in the future.
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