What if the loan exceeds the distributable surplus?
Our company gave a loan to one of our shareholders but the loan exceeds the distributable surplus. Should a complying loan agreement be entered into to cover the distributable surplus or the total loan amount?
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Answer by Anton Joseph, Sydney 2000 NSW
- The deemed dividend will be reduced to the extent of the distributable surplus. Any amount covered by the complying loan agreement will also be excluded from the deemed dividend amount.
- The complying loan agreement need not cover the whole loan amount. It only needs to include the loan amount that exceeds the distributable surplus.