Div 7A: one-off opportunity to correct past mistakes

The Tax Office has released Practice Statement Law Administration PS LA 2007/20. It provides guidance to Tax Office staff on how to treat specific 'corrective action' taken by taxpayers in respect of the 2001-02 to 2006-07 income years when considering whether or not to exercise the commissioner's discretion to disregard a deemed dividend where that 'corrective action' was taken prior to 1 July 2008. Corrective action requires any prior year exposure to be converted into an 'excluded loan' where prior year interest and capital payments are made by 30 June 2008 to ensure that affected taxpayers are Division 7A compliant by that date. CPA Australia and the other tax and accounting bodies have been lobbying for the above reforms since 1998 and believe that the Practice Statement offers some taxpayers a unique opportunity for significant tax relief.