Australia: Taxpayer alerts on early-stage investor tax offset scheme, Division 7A circumvention arrangements

The Australian Taxation Office (ATO) released two taxpayer alerts related to an early-stage investor tax offset tax avoidance scheme and a circumvention of Division 7A through private company third-party loan guarantees:

• TA 2024/1 Early stage investor tax offset claimed using circular financing arrangements outlines a scheme in which promoters claim a start-up company qualifies as an early-stage innovation company eligible to claim the early-stage investor tax offset and sell shares in the company to individuals through a tailored financing arrangement that allows the individuals to benefit with minimal (if any) risk on their investment.
• TA 2024/2 Arrangements to circumvent Division 7A of the Income Tax Assessment Act 1936 through the guaranteeing by private companies of third-party loans outlines arrangements that the ATO is reviewing under which a private company guarantees a loan made by a financial institution to a related private company that has no or minimal distributable surplus and the related company on-lends (or pays) some or all of the amount borrowed from the financial institution to the first company's shareholders (or their associates) on terms that do not comply with the requirements of Division 7A of the Income Tax Assessment Act 1936.

The ATO advises individuals who have entered, or are contemplating entering, into arrangements outlined in TA 2024/1 and TA 2024/2 to ask for the ATO's view through a private ruling, seek independent professional advice, or make a voluntary disclosure.