Topics on Division 7A (7) – Case Background (5)



Non-concessional contribution to SMSF

The taxpayers confirmed in an email to the Commissioner that a transfer of units in a unit trust (by the company to the taxpayer’s self-managed superannuation fund (‘SMSF’)) represented personal non-concessional contributions to self SMSF. The units were valued at $68,370, although it is unclear from the judgement as to how this valuation was arrived at. The Commissioner treated these payments as deemed dividends under S.109C.

The taxpayers claimed that this amount should not be treated as a deemed dividend on the basis that the amounts (i.e., the transfers) were not paid in cash, and were also transfers to an SMSF.

However, the AAT concluded that the Commissioner was correct to treat the transfer of the units as a deemed dividend. This was because under S.109C, a ‘payment’ includes a transfer of property while S.109ZD and S.318(1)(d) make it clear that an ‘associate’ includes the trustee of a trust under which there is a benefit to the shareholder (the taxpayers were members of the SMSF). In this regard, the AAT concluded that, once those two definitions are met, the transaction is one that is the object of the provision and nothing else in the accounts can operate to change that.


Did the general ledger sufficiently evidence the underlying transactions?

A serious issue for the taxpayers in Abichandani’s case (that related to all aspects of the dispute) was that they failed to produce any primary documents that would allow any conclusion to be drawn about the accuracy of the accounts, or the information in the general ledger. Nor were the company accounts audited, or even independently prepared. The taxpayer could provide no explanation as to why matters personal to the partners had been incorporated into the company accounts.

Absent corroboration and the production of primary records supporting the transactions contained in the general ledger for 2012 and 2013 years, as relied on by the taxpayers, the AAT was unable to accept the general ledger as evidence of the underlying transactions. In this regard, it is important to remember that, whilst accounting entries in the general ledger can document and corroborate a transaction, an accounting entry, of itself, cannot evidence the transaction.


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Tags: Division 7A

Written by Panbo Ye

I help people discover POWERFUL unknowns in Tax Ideas | Wealth Strategies | Retirement Planning | Finance Solutions!

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