The National Institute of Accountants (NIA) is calling on both political parties to show their small business credentials and intervene to put a stop to the ATO's changed view of the treatment of unpaid entitlements to corporate beneficiaries.

Taxation ruling TR 2010/3 now confirms the ATO view that unpaid present entitlements (UPE) to corporate beneficiaries will be treated as loans and potentially deeming them as unfranked dividends.

NIA chief executive officer Andrew Conway said this new approach puts an end to a 12 year long standard practice of not treating unpaid entitlements to corporate beneficiaries as loans.

"For the majority of cases the use of such funds by the trust is solely for business working capital related purposes. We have been reminded that the mischief which the ATO is trying to address is where these funds are used for private purposes within the trust," he said.

Funding for small business enterprises is already under pressure following the financial crisis.

Hundreds of thousands of small businesses which have legitimately utilised a trust structure with a corporate beneficiary are now being told by their advisors that unpaid entitlements can no longer be used to fund future operations with no detrimental tax implications.

There is strong evidence to indicate that it was never the intention of Division 7A to extend to UPE's and this latest change of heart by the ATO has no legislative basis. The ruling contradicts the underlying policy intent of Division 7A. The legal reasoning in the ruling is questionable and could be overturned in a court of law.

The ATO is concerned about the funds retained in the trust being used for non-business related purposes. The NIA questions why then impose a further layer of administrative and cash flow burdens on all trusts with corporate beneficiaries when it should only be applied to a relatively small number of trusts.

The joint accounting bodies were unanimous in requesting that the ruling be withdrawn.

The NIA will be fully supportive of legislative changes that go to the heart of addressing the mischief.

The NIA is now calling on either political party to show their small business credentials and indicate that they are prepared to step in and resolve the issue.

www.nia.org.au