How formal does a Division 7A complying loan agreement need to be?
I have been advised that unless I have a loan agreement in place for a loan I currently have from the company it will be deemed to be a dividend. How formal does the loan agreement need to be?
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Answer by LegalEagle staff, Melbourne 3000 VIC
- There is a certain degree of formality required under Division 7A. The loan agreement needs to comply with Section 109N of the Income Tax Assessment Act 1936.
- 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).