Division 7A - Payments & loans through interposed entities

About this fact sheet

This fact sheet discusses whether an amount is treated as a dividend where a private company makes a payment or loan to a shareholder or an associate of a shareholder through one or more third parties rather than directly to the shareholder or their associate.

For an overview of the provisions of Division 7A and the meaning of 'associate' refer to the fact sheet Division 7A - Overview.



The overview fact sheet includes a summary of the amendments made to Division 7A with effect for the income year in which 1 July 2006 occurred and for later years. In this fact sheet the first year in which the amendments apply is referred to as the 2006-07 income year.

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The total of all dividends a private company is taken to pay under Division 7A is limited to its distributable surplus for that income year. For more information, refer to the fact sheet Division 7A - Distributable surplus.

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 a general discretion to disregard the deemed dividend subject to conditions being complied with or allow the private company taken to pay the dividend to choose to frank the 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

The following terms are used throughout this fact sheet:

  • Interposed entity: An interposed entity is a third party which is interposed between a private company and a shareholder or an associate of a shareholder. An entity includes an individual, company, partnership or trust.
  • Target entity: A shareholder or their associate to whom the private company's payment or loan is ultimately directed.

In this fact sheet a reference to a shareholder or their associate is also a reference to:

  • an entity that has been a shareholder, or
  • an entity that has been an associate of a shareholder.
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    Last modified: 21 May 2013QC 17352