Division 7A Loans on Ordinary Commercial Transactions

A recent draft determination has brought into the spotlight specific situations where the ATO will determine a payment or loan to be a deemed dividend under Division 7A.

An example is where a company pays a dividend to a second company, who does not have a distributable surplus, and that second company loans funds to an associate.

A recent draft determination has brought into the spotlight specific situations where the ATO will determine a payment or loan to be a deemed dividend under Division 7A.

The Commissioner has considered that a reasonable person may conclude that this payment to the interposed entity could be made solely as part of an arrangement to divert profits to a shareholder.

In particular, the Draft Determination has singled out interposed entities without a distributable surplus as situations where this consideration will be considered.

To rectify this situation, you may need to either;

- repay the loan, or

- enter into a loan arrangement with a minimum interest rate and maximum term in accordance with Div 7A rules.

For further information please contact your RCB Advisors team member.

Sources:

Australia Taxation Office (https://www.ato.gov.au/law/view/document?docid=DXT/TD2017D3/NAT/ATO/00001)



Contact us now for a free consultation

Financial Planning

Contact us now for a free consultation

Financial Planning
RCB Wealth Advisors
RCB Wealth Advisors Pty Ltd

PO Box 439, Camberwell 3124
VICTORIA, Australia

+61 3 9882 0533
vasb@eponqivfbef.pbz.nh

RCB Wealth Advisors Pty Ltd (ABN 66 611 164 491) is a Corporate Authorised Representative (No. 1240230) of Capstone Financial Planning Pty Ltd. ABN 24 093 733 969. Australian Financial Services Licence No.223135.