• What is the amount treated as a dividend?

    The amount treated as a dividend is the amount of the debt forgiven, subject to the private company's distributable surplus.

    Example 4

    On 1 April 1997, Abacus Pty Ltd made a loan of $50,000 to Phil, a shareholder of Abacus Pty Ltd. In December 2006, Abacus Pty Ltd waived Phil's requirement to pay the full amount owing of $50,000. Phil was no longer a shareholder at that time.

    As the debt was forgiven after 4 December 1997, Abacus Pty Ltd is taken to pay a dividend to Phil of $50,000 on 30 June 2007, subject to Abacus Pty Ltd's distributable surplus.

    Amounts treated as dividends under Division 7A are generally not frankable, even though they are taken to be paid out of the private company's profits. However, there are some exceptions. For more information, refer to the fact sheet Division 7A - Franking implications.

    Where a deemed dividend arises under Division 7A in the 2001-02 or a later income year because of an honest mistake or inadvertent omission, the Commissioner has the discretion to disregard the deemed dividend, subject to conditions being complied with. He may also allow the private company taken to pay the dividend to choose to frank this dividend. See the fact sheet Division 7A - exercise of Commissioner's discretion under section 109RB to disregard the operation of Division 7A or allow a deemed dividend to be franked.

      Last modified: 12 Aug 2010QC 17349