DiscFamily Trust has given its consent and is required to repay the 10,000 $US to PrivCo Sub-Trust by 14 May 2023. The principles set out in tr 2010/3 and PS LA 2010/4 apply to UPEs that a trust owes to a business, including another trust. If Also Trust A appoints income to Trust B (a trust within the same family group) but does not pay the funds to Trust B, the UPE may make a financial adjustment and may be a loan for the purposes of Division 7A, unless the conditions of PS LA 2010/4 are met. This is shown in Figure 1. Division 7A does not automatically apply, although the UPE is a loan for Division 7A purposes. Essentially, a UPE becomes a loan as defined in these conditions if, in those circumstances, the funds representing the UPE are not reinvested exclusively for the benefit of the beneficiary before the date of filing of the trust`s income tax return. See para. 46 to 48 of PS LA 2010/4. Before the 2016 Trust Yield Lodgment Day, the trustee decides to place UPE, which is to Trust B PrivCo C, in a sub-trust for the sole profit of PrivCo C using one of PS LA 2010/4`s investment options.
The agent also uses the UPE, which owes Trust A Trust B, to a sub-trust for the sole benefit of Trust B, using one of the investment options of PS LA 2010/4. The sub-trust trustee may invest the funds representing the UPE in an existing asset (or part of an existing asset) held by the lead trust through Option 3. However, this is usually a transfer or part of the existing asset held by the main trust and an acquisition of the same asset by the sub-trust. Such an operation may, for example, trigger the capital gains tax (CGT). The Commissioner of Taxation considers that a UPE owed to a related company is not considered a loan if the funds representing the UPE are held in the sub-trust for the sole benefit of the related company. One of these options is Option 1, where the beneficiary of the business (through the sub-trust) effectively “lends” the UPE funds held in sub-trust to the main trust on a 7-year interest-rate loan basis. Interest was to be paid at the Division 7A reference rate, the principle of the loan having been repaid in full on the seventh anniversary of the agreement. If the principal trust did not repay the principle of the loan before this seven-year period, the 7-year loan would become a Division 7A loan that the company includes in the main trust.
As long as the trust contains information indicating that the trustee is entitled to set aside the trust`s income exclusively for the benefit of one or all of the beneficiaries, we will assume that the trustee will have the power to maintain UPE on the basis of the beneficiary of the private enterprise. . . .