DIVISION 7A – EXTENSION FOR MINIMUM YEARLY REPAYMENTS DUE TO COVID-19

The ATO have released guidance and a streamlined application form for taxpayers who are unable to meet their 2020 minimum yearly repayment (‘MYR’) for Division 7A purposes due to being affected by COVID-19. Where the required circumstances have been met, the Commissioner will exercise his discretion to allow an extension of time to make the repayment until 30 June 2021.

A taxpayer can apply at any time and expect a response within five business days of lodging the application form. Applications before the end of the lender’s 2019–20 income year will need to wait until after that time for a decision (as the Commissioner can only make a decision in writing after the end of the lender’s 2019–20 income year).

The extension will only be provided where the taxpayer confirms that:
1. They are ‘unable to pay’. This is about cash flow, and both cash resources and money readily obtainable from realising assets needs to be considered.
2. The inability to pay is a result of COVID-19.

The ATO provide a number of examples in relation to the inability to pay and whether this is due to the effect of COVID-19.

Examples of where the requirements are met include:
1. A business’ inability to recover debts from clients due to COVID-19.
2. A business affected by COVID-19 that only has sufficient cash to meet the cash flow requirements of its business.
3. An individual affected by COVID-19 who needs to use their assets to maintain an adequate living standard for themselves and their family.

Examples of where the requirements are not met include:
1. An individual who has a redraw facility on their home loan that could be used to make the MYR.
2. An individual who wishes to use their cash for discretionary costs such as purchasing items for their home.
3. A business that sustains losses due to the inability to attract interest from the market and not due to COVID-19.
4. A taxpayer who has readily saleable assets (eg. ASX listed shares) that could be used to make the MYR.

The form and further details can be accessed here:
https://www.ato.gov.au/Forms/Request-to-extend-time-to-make-minimum-yearly-repayments-for-COVID-19-affected-borrowers-under-section-109RD/

While this ATO discretion is welcomed, it is disappointing that it has been released this close to year-end (particularly when its was first flagged by the ATO on 13 May 2020). Further, the inability to obtain a decision prior to year-end may prevent taxpayers from making the application. However, if the conditions for the extension are clearly met, it is hoped taxpayers can rely on the ATO to provide the extension.

CONTACT US

For further information, or for general assistance, please contact Our Directors, Jacci Mandersloot or Natalie Claughton.

The information contained in this bulletin is intended to  provide  general information only and is not intended to serve as tax advice. Specific advice should always be sought regarding a taxpayers’ particular circumstances. Please contact MC Tax Advisors if you would like assistance with the issues identified in this bulletin.