The guidance finalises ATO’s guidance and clarifies its view on the application of section 109U to private company arrangements involving guarantees under Division 7A.

The Australian Taxation Office (ATO) announced it issued Taxation Determination TD 2025/6, titled “Income tax: does section 109U of the Income Tax Assessment Act 1936 only apply to arrangements where a private company gives a guarantee to another private company?” on 24 September 2025.

This determination applies to periods both before and after its publication. However, it will not apply to taxpayers where doing so would conflict with the terms of a dispute settlement agreed upon before its release.

This guidance clarifies that in these arrangements, the private company can give the guarantee to any entity, including a public company, such as a public bank or financial institution.

ATO has taken feedback on the draft determination into account and has updated its compliance approach to include a reference to not devoting compliance resources to 109N-compliant loans made to a target entity.

Under Division 7A, the definition of a ‘loan’ is broadened to encompass various forms of financial support. This includes the direct advance of money and the provision of credit or any other type of financial accommodation. Additionally, any payment made for a shareholder or their associate can be considered a loan if there is an obligation to repay it, whether the payment is made on their account, on their behalf, or at their request. The provision also extends to any transaction, regardless of its form or terms, that effectively functions as a loan of money. In such cases, the loan is considered to be made at the time the amount is paid either as an ordinary loan or if any of these are done in relation to a shareholder or an associate.

What this Determination is about

  • Section 109U of the Income Tax Assessment Act 1936 (ITAA 1936) forms part of Subdivision E of Division 7A, which deals with payments and loans through interposed entities. Under section 109U, a private company is taken to make a payment to a shareholder or associate of a shareholder (target entity) if:
    • the private company guarantees a loan made by another entity (first interposed entity)
    • a reasonable person would conclude (having regard to all the circumstances) that the private company gave the guarantee solely or mainly as part of an arrangement involving a payment or loan to the target entity
    • another private company (which may be the first interposed entity or another interposed entity) makes a loan or payment to the target entity, and
    • the amount paid or loaned by the other private company to the target entity exceeds that company’s distributable surplus.
  • The amount of any deemed payment is worked out by the Commissioner under section 109V of the ITAA 1936.
  • This Determination deals with the issue of whether the first interposed entity (that is, the entity to whom the guarantee is given) needs to be a private company in order for section 109U of the ITAA 1936 to apply.
  • All further legislative references in this Determination are to the ITAA 1936, unless otherwise indicated.