Division 7A is a term many business people see and hear when reviewing their tax affairs with their accountants.

It is a phrase that usually results in the clients eyes glazing over and then thinking, “One day I will look that up to see what it means”!

Fortunately, good accountants keep their clients out of trouble, but the ATO has seen enough mistakes in relation to Division 7A to warrant producing a series of articles and webinars titled “Decoding division 7A”.

Basically, this legislation relates to loans, payments or other benefits that may be provided to a shareholder from a private company. If certain rules are not followed there can be unexpected and quite adverse tax outcomes.

While the arrangement of tax affairs is rightly the province of your accountant, the strategies to ensure tax positions are optimised do have an impact on our advice, particularly for more recently retired business clients.

We consult extensively with our clients’ accountants to agree upon levels of distributions, potential taxable income, necessity or otherwise for future deductible superannuation contributions, cash flow requirements and appropriate investment entities.

If you are a recently retired business person who always wondered about Division 7A, you can read about it here.  At the very least it may help you settle into the habit of an afternoon nap!