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1 Is the Company taken to pay a particular dividend to the Rulee under Division 7A of the Income Tax Assessment Act 1936 (ITAA 1936) in respect of the loan from the Company to the Rulee?

Yes. Question 2 In the event the Commissioner considers the answer to question 1 is 'yes', will the Commissioner exercise his discretion under section 109RB of the ITAA 1936 to disregard the deemed dividend that arose having regard to the corrective action proposed? Answer Yes, subject to the following conditions that are imposed in accordance with subsection 109RB(4) of the ITAA 1936: 1.               That by 15 April 20XX, the Rulee enter into a complying Division 7A loan agreement with the Company; and 2.               That by 15 April 20XX, the Rulee pay to the Company an amount equal to: •                 The loan advance to the Rulee during the year ended 30 June 20XX (i.e. $X); plus •                 The interest that would have been payable to the Company (i.e. $X calculated to 30 June 20XX) had the Loan been placed on complying Division 7A terms; plus •                 Interest from 1 July 20XX to 15 April 20XX of $X; and 3.               Noting that the interest will be assessable to the recipient (the Company) in the year it is paid (i.e. the year ending 30 June 20XX); and

4.               That the Rulee comply with the terms of the complying Division 7A loan agreement until the loan is repaid in full. This ruling applies for the following periods : •                 Year ended 30 June 20XX •                 Year ended 30 June 20XX •                 Year ending 30 June 20XX The scheme commenced on: 1 July 20XX

The relevant parties 1.               The Rulee is an Australian national and has been resident in Australia since 20XX. 2.               The Company is an Australian incorporated company and has at all material times been tax resident in Australia. 3.               The Rulee is the spouse of the sole shareholder of the Company. 4.               The Rulee's spouse became the sole shareholder following the vesting of the Trust's assets in the spouse's favour. 5.               The vesting of that Trust was one of a number of steps taken in 20XX to restructure the Company and the Trust (the Restructure). 6.               The Rulee's spouse is one of four directors of the Company. 7.               The Rulee does not work in the accounting industry and has no qualifications or training in taxation or accounting. 8.               The Company has, or at 30 June 20XX had, a distributable surplus at least equal to the amount of the loans to which the Private Ruling relates. The relevant transactions 9.               The Company holds substantial real property and business interests in Country A.

10.            Prior to returning to Australia, the Rulee and their spouse carried on a partnership business with the Company in Country A (the Partnership). The Partnership is what gave rise to the loans from the Company to the Rulee and their spouse. 11.            The preparation of the Company's financial statements is undertaken by the Company's Australian accountant and tax agent (the Accountant). However, the Accountant relies on the Company's accountant in Country A (Country A Accountant) to provide the Company's financial results from its Country A operations. The Accountant then incorporates the Country A financial results in the financial statements, which are then used to prepare the Company's Australian income tax return. 12.            In relation to the year ended 30 June 20XX, the Country A Accountant first provided the Accountant with the Company's Country A accounts and workpapers in November 20XX. Due to the pre-Christmas rush, the Accountant did not review the Country A workpapers until January 20XX. The Country A workpapers disclosed the existence of loans from the Company to the Rulee and their spouse (the Loans).

13.            The Country A workpapers contained limited information concerning the Loans and the Accountant had no visibility about how the loans came into existence. 14.            The Accountant considered that, as a result of the Restructure, there should have been no debit loans from the Company to the Rulee or their spouse, and their expectation was that the Loans recorded in the Country A workpapers would reverse in the course of completing the Company's financial statements for the year ended 30 June 20XX. Accordingly in February 20XX, the Accountant put various questions to the Country A Accountant concerning the Country A workpapers, including whether the Loans were correctly recorded. 15.            The existence (or otherwise) of the Loans was a relevant consideration for the Accountant - both in terms of ensuring that the Company's financial statements accurately reflected its true financial position and because the Accountant was aware of Division 7A and the need to comply with its terms.

16.            On that basis, the Accountant prepared to lodge the Rulee's income tax return for the year ended 30 June 20XX in March 20XX. Because the Accountant expected that no debit loans would exist by the time the Company's 20XX financial statements were finalised, no Division 7A issues, and no deemed dividend was recorded in the Rulee's income tax return. 17.            Over the period from February to May 20XX, the Accountant put various queries to the Country A Accountant, including seeking further information concerning the Loans, given their expectation that there ought to have been nil balances as at 30 June 20XX. 18.            After close of business Sydney time on 15 May 20XX, the Country A Accountant responded to the Accountant's queries and provided an explanation concerning the existence of the Loans. In essence, the Partnership had incurred losses in Country A, and those losses had been funded by the Company. As such, the Rulee and their spouse had overdrawn partnership capital accounts, while the Company had made additional capital contributions to the Partnership to fund the Partnership losses.

19.            By this time, it was clear that the Loans as recorded in the Country A workpapers were correctly recorded. 20.            The Company's income tax return for the year ended 30 June 20XX was lodged in June 20XX. Its financial statements were finalised for client approval and signature on the same date. The financial statements for the year ended 30 June 20XX recorded a debit loan for the Rulee of $X. 21.            Despite being aware that a debit loan payable by the Rulee and their spouse to the Company would attract the operation of Division 7A, in the rush to complete the Accountant's overall compliance workload for the year ended 30 June 20XX, the need for complying Division 7A loan agreements to be executed was overlooked and such loan agreements were not put in place.

22.            The Accountant went on leave shortly after lodging the Company's income tax return for the year ended 30 June 20XX and returned to work in July 20XX. In late August or early September 20XX, the Accountant realised that the existence of the Loans at 30 June 20XX would have caused a Division 7A issue. The Accountant then spoke with the Lawyers in late October 20XX to discuss the issue and the Lawyers then alerted the Rulee to the issue in early November 20XX and recommended that steps be taken to rectify the issue. Actions taken since becoming aware of the issue 23.            Since becoming aware of the issue in November 20XX, the Rulee has engaged the Lawyers to provide advice regarding the application of Division 7A and to assist with making this Private Ruling Application for the Commissioner's discretion. Proposed rectification action 24.            The Rulee proposes that the Commissioner accept the following rectification action: •                 That the Rulee enter into a complying Division 7A loan agreement with the Company; and •                 That the Rulee pay to the Company an amount equal to:

i.                    The loan advance to the Rulee during the year ended 30 June 20XX (i.e. $X); plus ii.                    The interest that would have been payable to the Company (i.e. $X calculated to 30 June 20XX) had the Loan been placed on complying Division 7A terms; plus iii.                    Interest from 1 July 20XX to the date of the actual repayment of the above amounts. This will occur by 15 April 20XX - in which case the interest for this period will be $X; and •                 That the interest be paid during the current income year and be assessable to the recipient (the Company) in the year it is paid (i.e. the year ending 30 June 20XX); and •                 That the Rulee comply with the terms of the complying Division 7A loan agreement until the loan is repaid in full. 25.            The Rulee is in the process of realising assets for the purpose of putting their funds to make the above payments. Request for exercise of the Commissioner's discretion (paragraph 109RB(2)(a) of the ITAA 1936)

26.            The Applicant acknowledges that the Accountant was clearly aware of the existence and operation of Division 7A. However, the failure to arrange for a complying Division 7A loan agreement to be put in place (here the relevant omission - being a failure to do something that was required to be done) was the result of inadvertence. 27.            The Applicant observes that there is no single definition of 'inadvertence' and the term can encompass an unintentional failure to properly observe or pay attention and can also constitute a mere mistake.

28.            The Applicant puts forward that in the present circumstances, while the Accountant was aware of the operation of Division 7A and the need to comply with its terms, there was an inadvertent omission in the sense that, as a result of oversight, a complying Division 7A loan agreement was not entered into. That oversight occurred in the context of a belief held by the Accountant that, on closer scrutiny, the Loans would not exist as at 30 June 20XX and, by the time the Loans were confirmed to be correct, the Accountant was experiencing the busiest time of the year attending to the compliance obligations of the Company and their other clients with the result that a complying Division 7A loan agreement was not entered into. The Applicant submits that this is a paradigm example of an inadvertent omission.

29.            The Applicant emphasises the importance of the Accountant's subsequent behaviour lending support to the argument that this is a case of inadvertent omission. That is, the Accountant, shortly after returning from leave following the busiest time of year, identified the issue and raised it with the Lawyers, who then raised the issue with the Rulee such that this Private Ruling Application would be made within a very short period of time after the issue was identified. 30.            The Applicant concludes that the Commissioner is able to make a decision under section 109RB as the Company paid a dividend to the Rulee as the result of an honest mistake or inadvertent omission. The Company and the Rulee effected actions that have resulted in a loan to the Rulee. The Loan arose from very normal arrangements between a company and its shareholder. 31.            The Applicant puts forward the following circumstances as relevant to the Commissioner making his decision: •                 The Rulee sought the advice of a professional advisor. •                 The Accountant is a registered tax agent and accountant.

•                 It was entirely reasonable for the Rulee and the Company to rely on the Accountant and they should be considered to have taken reasonable care and to have acted in accordance with professional advice. •                 The Loans were commercial in the sense used in PSLA 2011/29. •                 There was no tax avoidance purpose, nor any fraud or evasion involved. •                 The Loans were recorded in the financial statements of the Company, which shows there was no intention to avoid the operation of Division 7A and lends support to the argument that there was an inadvertent omission. 32.            The Applicant notes that whilst the Rulee has not taken any corrective action as at the date of the Private Ruling Application, they are willing to do so should the Commissioner consider the corrective action proposed appropriate. The corrective action proposed is a total payment of $X by 15 April 20XX (i.e. principal of $X and interest of $X) and puts the Rulee (and the Company) in the same position they would have been in had a complying Division 7A loan agreement been put in place.

33.            The Applicant also submits that the Rulee has taken corrective action as expediently as possible in the circumstances and completely voluntarily. Specifically: •                 The Rulee became aware of their historical Division 7A issues in November 20XX; and •                 The Rulee then engaged the Lawyers and lodged this Private Ruling Application very shortly after. 34.            The Applicant is not aware of Division 7A having any prior application to the Rulee. 35.            The Applicant states the following additional circumstances are relevant to the Commissioner exercising his discretion: •                 Neither the Accountant nor the Rulee had any intention of avoiding the application of Division 7A and also notes, this is a paradigm example of inadvertent omission; •                 The purpose of Division 7A as an integrity provision will not be compromised if the Commissioner exercises the discretion in this case; and •                 The Rulee is acting voluntarily - i.e. the Commissioner is not currently reviewing the Rulee's affairs.

Income Tax Assessment Act 1936 Division 7A Income Tax Assessment Act 1936 Section 109D Income Tax Assessment Act 1936 Section 109N Income Tax Assessment Act 1936 Section 109Y Income Tax Assessment Act 1936 Section 318 Income Tax Assessment Act 1936 Section 109RB

All references are to the Income Tax Assessment Act 1936 unless otherwise stated. Summary The Company is taken to pay a dividend of $X to the Rulee under section 109D of Division 7A for the year ended 30 June 20XX. Detailed reasoning 1.               Division 7A is a specific anti-avoidance measure designed to prevent private companies from making tax-free distributions of profits to shareholders or to their associates in the form of payments, loans or debts that are forgiven. If Division 7A applies, amounts paid, lent or forgiven by a private company to a shareholder or their associate are treated as dividends, unless they come within specified exclusions.

2.               A loan made by a private company to a shareholder of the company or to an associate of the shareholder may, by virtue of section 109D, be a Division 7A deemed dividend. Section 109D is activated if a private company makes a loan to a shareholder or an associate of a shareholder during an income year and the loan is not fully repaid before the company's 'lodgment day' (subsection 109D(1)). The lodgment day is the earlier of the due date for lodgment of the company's income tax return for the income year, or the actual lodgment day (subsection 109D(6)). A 'loan' is defined in subsection 109D(3) and is wider than simply an ordinary loan consisting of a payment and a legally enforceable obligation to repay. Subsection 109D(1) does not apply to a loan if an exclusion in Subdivision D of Division 7A applies. This includes where the loan is put on a commercial footing so that it meets the conditions of section 109N (i.e. a complying loan agreement).

3.               If subsection 109D(1) is satisfied, a dividend is deemed to have been paid at the end of the relevant income year. The dividend is the amount of the loan that has not been repaid before the company's lodgment day for the income year when the loan was made, subject to the limits imposed by section 109Y by reference to the company's distributable surplus. 4.               The Company made a loan to the Rulee of $X in the year ended 30 June 20XX. 5.               The Rulee's spouse is, and has been since April 20XX, the sole shareholder of the Company. However, at the time of the Loan, the Rulee's spouse was not a shareholder. The Company was previously owned by a Trust controlled by the Rulee's spouse. The Rulee's spouse became the sole shareholder following the vesting of the Trust's assets in the Rulee's spouse's favour. The vesting of that Trust was one of a number of steps taken in April 20XX to restructure the Company and the Trust (the Restructure). The Rulee's spouse is one of four directors of the Company.

6.               Relevantly, Division 7A applies where the recipient of the loan is 'an associate of a shareholder'. An 'associate' has the meaning given in section 318, which covers a broad range of entities that are associates of natural persons, companies, partnerships and trustees. The associates of a trustee are defined by subsection 318(3) to mean: •                 Any entity that benefits under the trust •                 If an individual benefits under the trust, any entity classed as an associate of that individual under the rules in subsections 318(1) or (3) •                 If a company is treated as an associate of the trustee under either of the above rules, any entity that would be an associate of the company under the rules in subsections 318(2) or (3). An entity is taken to benefit under a trust where it actually benefits or is merely capable of benefiting, whether by the exercise of a power of appointment or in some other way. The benefit may either be direct, or indirect through any interposed companies, partnerships or trusts.

7.               The Rulee is an associate of the shareholder of the Company (the Trust) at the relevant time as they are a relative of their spouse (an associate under subsection 318(1)) and they were an entity that was capable of benefiting under the Trust and did in fact later benefit when the Trust vested and the Rulee's spouse became the sole shareholder of the Company. 8.               The Loan was not fully repaid before the company's 'lodgment day', which according to subsection 109D(6) in this instance was 15 May 20XX because that was the earliest of when the Company's income tax return was due (15 May 20XX) or actually lodged (in June 20XX). 9.               Subdivision D of Division 7A does not prevent the private company from being taken to pay a dividend. 10.            The Company had at 30 June 20XX a distributable surplus at least equal to the amount of the Loan. 11.            The Company is taken to have paid a dividend of $X to the Rulee under section 109D for the year ended 30 June 20XX. Question 2 Summary The Commissioner will exercise his discretion under section 109RB to disregard the deemed dividend that arose subject to specified conditions being met.

Detailed reasoning 1.               Division 7A prevents private companies from making tax free distributions to shareholders and their associates through payments, loans and debt forgiveness where they would otherwise be taxable dividends if paid out of profits. 2.               A dividend of $X is deemed to have been paid to the Rulee at the end of the 20XX income year as this amount was not repaid prior to the lodgment date for the Company, nor placed on Division 7A complying loan terms (section 109D). 3.               Section 109RB provides the Commissioner with a discretion to disregard the application of Division 7A. Taxation Ruling TR 2010/8 Income tax: Application of subsection 109RB(1) of the Income Tax Assessment Act 1936 (TR 2010/8) says at paragraph 4: For subsection 109RB(1) to be satisfied the result of the operation of Division 7A must arise because of an honest mistake or inadvertent omission of the recipient of the dividend, the private company or any other entity that contributed to the result.

4.               It is a question of fact whether an honest mistake or inadvertent omission has occurred, and all facts and circumstances must be considered (TR 2010/8, paragraph 7). 5.               The terms 'honest mistake' or 'inadvertent omission' are not defined and take on their ordinary meaning (TR 2010/8, paragraph 9). TR 2010/8 says: [11] A mistake in the context of subsection 109RB(1) is an incorrect view or opinion or misunderstanding about how Division 7A operates; about facts that are relevant to its operation; or about matters that affect its operation. Such a mistake must be honestly made. [12] An omission in the context of subsection 109RB(1) is a failure to take action that is relevant to, or affects, the operation of Division 7A. Such an omission must be inadvertent. 6.               Where the honest mistake or inadvertent omission is by an entity other than the recipient entity or the private company, it is also necessary that the taxpayer demonstrate that the entity's conduct contributed to the result of the operation of Division 7A (TR 2010/8, paragraph 17). 7.               At paragraph 58, TR 2010/8 says:

It is for the taxpayer to demonstrate to the Commissioner that the failure to satisfy the requirements of Division 7A was the result of an honest mistake or inadvertent omission. Evidence of an attempt to comply with the intent or requirements of Division 7A can be relevant, as can evidence of why the requirements were not met. As explained earlier, corrective action taken after Division 7A has been triggered does not in itself establish the existence of a mistake or omission, although it is relevant to the exercise of the discretion to disregard the result of operation of Division 7A. 8.               The Applicant acknowledges that the Accountant was clearly aware of the existence and operation of Division 7A. However, the failure to arrange for a complying Division 7A loan agreement to be put in place was the result of inadvertence and this is what is submitted as the relevant omission - being a failure to do something that was required to be done. 9.               From paragraphs 77 to 85 TR 2010/8 provides numerous definitions of 'omission' and 'inadvertent' and then at paragraph 86 says:

Inadvertence implies a degree of pre-existing knowledge. Inadvertence is often described as being a failure to observe, or failure to pay attention. Whether an omission will be regarded as inadvertent is a question of fact and degree in each case. 10.            Subsection 109RB(2) provides that the operation of Division 7A may be disregarded or the dividend taken to have been paid may be franked. 11.            In making a decision to disregard a deemed dividend, the Commissioner must have regard to the factors set out in subsection 109RB(3), as follows: •                 the circumstances that led to the mistake; •                 the extent to which the relevant entities have taken action to correct the mistake and if so how quickly that action was taken; •                 whether Division 7A has operated previously to any of the relevant entities; and •                 any other matters that the Commissioner considers relevant. 12.            The Applicant requests an exercise of the discretion in section 109RB based on an inadvertent omission of the Accountant in failing to put the Loan on complying terms by the lodgment date for the year ended 30 June 20XX.

13.            An examination of the circumstances that led to the omission reveals a number of factors that would weigh in favour of a characterisation of honesty and inadvertence in terms of the failure to attend to Division 7A compliance: •                 The Company and the Rulee have come to us voluntarily and sought to rectify immediately. This is indicative of a taxpayer who has an honest and compliant tax posture. •                 There is no evidence of previous Division 7A non-compliance. •                 The Loans arose from the Rulee and their spouse having overdrawn partnership capital accounts, while the Company had made additional capital contributions to the Partnership to fund its losses in Country A. •                 The preparation of the Company's financial statements is undertaken by the Accountant. The Accountant relies on the Country A Accountant to provide the Company's financial results from its Country A operations which are incorporated and used to prepare the Company's Australian income tax return.

•                 In relation to the year ended 30 June 20XX, the Country A Accountant first provided the Accountant with the Company's Country A Accounts and workpapers in November 20XX. Due to the pre-Christmas rush, the Accountant did not review the Country A workpapers until January 20XX. The Country A workpapers disclosed the existence of loans from the Company to the Rulee and their spouse. •                 The Country A workpapers contained limited information concerning the Loans and the Accountant had no visibility about how the Loans came into existence. •                 The Accountant considered that, as a result of the Restructure, there should have been no debit loans from the Company to the Rulee or their spouse, and their expectation was that the Loans recorded in the Country A workpapers would reverse in the course of completing the Company's financial statements for the year ended 30 June 20XX. Accordingly in February 20XX, the Accountant put various questions to the Country A Accountant concerning the Country A workpapers, including whether the Loans were correctly recorded.

•                 The Accountant lodged the Rulee's income tax return for the year ended 30 June 20XX in March 20XX. Because the Accountant expected that no debit loans would exist by the time the Company's 20XX financial statements were finalised, no Division 7A issues, and no deemed dividend was recorded in the Rulee's income tax return. •                 Over the period from February to May 20XX, the Accountant put various queries to the Country A Accountant, including seeking further information concerning the Loans, given their expectation that there ought to have been nil balances as at 30 June 20XX. •                 After close of business Sydney time on 15 May 20XX, the Country A Accountant responded to the Accountant's queries and provided an explanation concerning the existence of the Loans. By this time, it was clear that the Loans as recorded in the Country A workpapers were correctly recorded.

•                 The Company's income tax return for the year ended 30 June 20XX was lodged in June 20XX. Its financial statements were finalised for client approval and signature on the same date. The financial statements for the year ended 30 June 20XX recorded a debit loan of $X for the Rulee. •                 Despite being aware that a debit loan payable by the Rulee and their spouse to the Company would attract the operation of Division 7A, in the rush to complete the Accountant's overall compliance workload for the year ended 30 June 20XX, the need for complying Division 7A loan agreements to be executed was overlooked and such loan agreements were not put in place.

•                 The Accountant went on leave shortly after lodging the Company's income tax return for the year ended 30 June 20XX and returned to work in July 20XX. In late August or early September 20XX, the Accountant realised that the existence of the Loans at 30 June 20XX would have caused a Division 7A issue. The Accountant then spoke with the Lawyers in late October 20XX to discuss the issue and the Lawyers then alerted the Rulee to the issue in early November 20XX and recommended that steps be taken to rectify the issue. •                 The loans arose from an ordinary arrangement between a company and its shareholder. However, visibility of the details of this arrangement was obscured between the Country A and Australia for some time. •                 The Loans were recorded in the financial statements of the Company, which shows there was no intention to avoid the operation of Division 7A and lends support to the argument that there was an inadvertent omission. •                 The Rulee does not work in the accounting industry, has no qualifications or training in taxation or accounting and accordingly relies on the Accountant to attend to taxation compliance.

14.            Considering that the Accountant initially believed that as a result of the Restructure, there should have been no debit loans from the Company to the Rulee or their spouse, and their expectation was that the Loans recorded in the Country A workpapers would reverse in the course of completing the Company's financial statements for the year ended 30 June 20XX, it is plausible that they would inadvertently omit to put in place the required complying loan agreement in the end of year rush to finalise financials and income tax returns across their practice. The Accountant had operated on this understanding from November 20XX when the Country A workpapers were received, including in lodging the Rulee's income tax return in March 20XX. Although the Accountant was making enquiries of the Country A Accountant, it was not clear that there was a Division 7A issue until after the Company's lodgment date of 15 May 20XX. The Rulee's $X loan was included in the Company's 20XX financials in preparing the 20XX income tax return lodged in June 20XX. About a month after returning from leave, the Accountant realised the oversight and then spoke with the Lawyers approximately another month after that. The Rulee was notified the following month, and the Private Ruling Application currently being considered was lodged shortly after the Christmas period. All of this lends itself to the conclusion that the oversight on the part of the Accountant in not putting a complying loan agreement in place eventuated from the initial lack of clarity around the loans, the protracted discussion with the Country A Accountant and the incorrect belief that there would be no outstanding loans to deal with. The Accountant inadvertently omitted to put the complying loan agreement in place by the Company's lodgment date and this led to the deemed dividend of $X arising to the Rulee in the year ended 30 June 20XX.

15.            On being advised by the Lawyers that there were Division 7A tax consequences in respect of the Loan, the Rulee and the Company have promptly made this voluntary disclosure to the Commissioner (the Private Ruling Application) and the Rulee is in the process of realising assets for the purpose of putting their funds to make the following rectification action: i.                    That the Rulee enter into a complying Division 7A loan agreement with the Company; and ii.                    That the Rulee pay to the Company an amount equal to: i.                    The loan advance to the Rulee during the year ended 30 June 20XX (i.e. $X); plus ii.                    The interest that would have been payable to the Company ($X) calculated to 30 June 20XX had the Loan been placed on complying Division 7A terms; plus iii.                    Interest from 1 July 20XX to the date of the actual repayment of the above amounts. This will occur by 15 April 20XX - in which case the interest for this period will be $X; and

iii.                    That the interest be paid during the current income year and be assessable to the recipient (the Company) in the year it is paid (i.e. the year ending 30 June 20XX); and iv.                    That the Rulee comply with the terms of the complying Division 7A loan agreement until the loan is repaid in full. 16. Practice Statement Law Administration PS LA 2011/29: Deemed dividends: Commissioner's discretion to disregard or frank a deemed dividend (PS LA 2011/19) considers whether to exercise the discretion subject to a condition (subsection 109RB(4)) and says, at paragraph 13B: The Commissioner may exercise the discretion subject to the following kinds of conditions: •                 a condition that the recipient or other entity must make specified payments to the private company or another entity within a specified time, or •                 a condition that a specified requirement in Division 7A must be met within a specified time.

It goes on to say that where the Commissioner exercises the discretion subject to a condition, the relevant deemed dividend is not disregarded until such time as any conditions imposed by the Commissioner are satisfied (subsection 109RB(5)). Therefore, any amount assessable as a result of Division 7A remains assessable if any conditions imposed are not satisfied. 17.            The corrective action outlined above will put the parties in the position they would have been in had a complying loan agreement been put in place by the Company's lodgment date. The gateway testing in subsection 109RB(1) is considered satisfied and on the same analysis it considered appropriate that the discretion will be exercised favourably. This exercise of the Commissioner's discretion is subject to the condition (subsection 109RB(4)) that the corrective action as outlined above is taken by 15 April 20XX.