Thinking about using your business / investment entity’s assets for your own benefit? Assets that are held by separate entities but that are being used for your own benefit or enjoyment can potentially attract unwanted tax outcomes.
A shareholder’s private use of company assets can be subject to Division 7A, and the value of this use (eg market value of asset rental) may be a taxed as a deemed dividend and form part of the shareholder’s assessable income.
Division 7A deemed dividends are generally unfrankable distributions which can trigger adverse tax consequences for the taxpayer.
Any private use of business assets by the employees and their associates can attract fringe benefits tax (FBT), which is currently at a rate of 47%. FBT is calculated on the grossed up taxable value of the benefit which can be reduced by any employee contribution. Payments or benefits provided to shareholders or their associates in their capacity as an employee can also be caught by FBT.
The tax act denies a tax deduction for any private use of an asset. For example if you hold a short term rental property in your family trust, but use it privately during the summer, your trust would generally be denied a tax deduction for the private portion of any expenses while it is not being rented or available for rent.
The rules can differ depending upon the type of entity and the circumstances, so careful consideration is required before using any business assets for private purposes. Contact your trusted Exant advisor or our Tax Specialist, Jamie Towers on 07 3218 3900.