Published on 01 Mar 13
by "TAXATION IN AUSTRALIA" JOURNAL ARTICLE
When a private company makes a loan to a shareholder or an associate during an income year, Div 7A of the Income Tax Assessment Act 1936 (Cth) can deem the company to have paid a dividend. The dividend is assessable to that shareholder/associate. However, no deemed dividend will arise if the loan is either repaid or placed under a complying loan agreement before the due date for lodgment of the company’s income tax return for that year (or the actual date of lodgment, if earlier). A common way of making each year’s minimum repayment on a Div 7A loan is to set it off against a dividend of the same amount declared by the company.
This article sets out an alternative approach whereby the loan is fully repaid at the outset in the same manner, and the client borrows from the bank to pay the top-up tax arising on the dividend. This may actually leave your client better off.
David Montani CTA
David is a Director at Nexia Perth with over 20 years of experience in taxation and business advisory. David leads Nexia Perth’s Tax Consulting Division; a small group of specialist advisers dedicated solely to business and corporate tax advice. Particular areas of specialty include business re-structures, property transactions, CGT, Division 7A and business sales. A significant part of David’s business is providing specialist tax advice to other accounting firms on behalf of their clients under the Nexia Tax Alliance. David’s approach is to deliver solutions-based outcomes that assist clients in making important decisions concerning their businesses. He also regularly delivers specialist tax training to member firms of the Nexia Tax Alliance. Current at 01 January 2014