You may be considered to have taken Div 7A loan from your company if you (or your related party) have taken money from your company that isn’t the following:
As an owner or director of a company, you are entitled to take a loan from your company however, it has many tax implications as well so, it’s important to understand the tax consequences of taking directors loan in a company.
Under Division 7A of the Income Tax Assessment Act 1936, any shareholder or director’s loans should be established through a formal loan agreement that details repayment terms and interest charges.
Div 7A loans are repayable (generally in 7 years) along with interest calculated at ATO’s benchmark rate.
Div 7A loan may be repaid by declaring a dividend equal to the required minimum repayment before the end of each financial year so there is no actual repayment of cash to the company.
If the minimum repayment on a director’s loan is not made by the due date, the deficit amount is taxed as an unfranked dividend (Div 7A dividend) to the loan recipient in that financial year under Division 7A rules.
It is important to note that a payment or other benefit that’s potentially subject to Division 7A isn’t treated as a Division 7A dividend if it’s repaid or converted to a complying loan by the company’s lodgement day for the income year in which the payment occurs.
Get in touch with us today, if you have any questions or need guidance for compliance with Div 7A loan.
Disclaimer: This article is provided as general information only and does not consider your specific situation, objectives, or needs. It does not represent accounting or tax advice upon which any person may act. Implementation and suitability require a detailed analysis of your specific circumstances. Before taking any action, consider your own circumstances and seek professional advice.