• If a company has provided a loan to a shareholder or an associate the loan should be repaid before the date the company is required to lodge its tax return for the income year.
• If the loan is not repaid before that date the company will be taken to have paid a dividend to the shareholder or the associate.

• Yes. A company can take remedial action to avoid a payment made to a shareholder being considered as a deemed dividend under Division 7A.
• The Company and the shareholder may enter into a loan agreement that complies with Section 109N of the Income Tax Assessment Act 1936.
• You could use our Fixed Fee Quote service to call for tenders from lawyers to help you draft your required loan agreements.

• Basically the loan agreement must be:

• in writing;
• the interest payable must not be less than the statutory minimum (benchmark interest rate); and
• the term of the loan must not be longer than the statutory maximum term (7 years for an unsecured loan or 25 years for secured loans).        

• The ‘distributable surplus’ of a company is the amount calculated by deducting from the company’s net assets and Division 7A amounts:

• any non-commercial loans;
• paid up share value; and
• repayments of non-commercial loans.

• A present legal obligation including unpaid tax for the year is deductible in calculating the distributable surplus of the company.
• If you have any concerns you can use our free and anonymous Ask a Lawyer service to get information specific to your situation.

• It is only the shortfall in payment that will be considered as a deemed dividend under Division 7A.
• The ATO has discretion to disregard any Division 7A outcomes if the failure to make the minimum payment was:

• due to circumstances beyond the control of the parties; and
• the parties would suffer undue hardship resulting from the deemed dividend.

• The shareholder may also be given more time to pay the shortfall amount.
• You can use our Phone a Lawyer service for a preliminary legal consultation if you think you may need legal advice.

• The Commissioner has discretion to exempt the application of Division 7A if the payment was made as a result of:

• an honest mistake; or
• an inadvertent omission.

In deciding whether to use the discretion the Commissioner takes into account the extent to which the parties have taken corrective action and application of the Division on earlier occasions.

• There is no special definition of associates for the purposes of Division 7A. The general definition in tax law is used.
• In most cases associates include:

• a relative:
  • parent;
  • grandparent;
  • brother or sister;
  • uncle or aunt;
  • niece or nephew;
  • lineal descendent;
  • spouse including a de facto regardless of their gender;
  • any relative of the spouse; and
  • an adopted child or her or his spouse;
• a partner of the person, the spouse or child of a partner of the person;
• a company that is sufficiently influenced by the person or his associates; and
• a company where more than 50% of voting rights are controlled by the person or his associates.

• This list is not exhaustive. A careful look at the people to whom payments are made by the company is recommended.