If a loan is repaid by the earlier of the due date for lodgment or date of lodgment of the trust's tax return for the income year in which the loan is made, the loan will not be treated as a dividend.
However, a repayment will not be counted if at the time it is made there is an intention to obtain a loan from the trust of an amount similar to or larger than the repayment.
For the 2006-07 and later income years certain loans can be refinanced
without triggering a deemed dividend. For further information see the
fact sheets Division 7A - loans by private companies and Division 7A - overview by private companies.
Robert is a shareholder of Bob Pty Ltd, a private company. On 30 July 2005, Robert receives a $30,000 loan from the trustee of the M Trust. At the time of the loan, Bob Pty Ltd has unpaid present entitlement to net income due from the M Trust of $70,000. The tax return of the M Trust for the 2007 income year is lodged on 14 May 2008 (the due date for lodgment) and Robert repays the loan to the M Trust on 28 February 2008. In this case an unfranked dividend does not arise to Robert. This is because the loan is repaid by the earlier of the due date for lodgment or date of lodgment of the M Trust's 2007 tax return (being the tax return for the income year in which the loan is made).
The same facts as in example 5 except that Robert receives a further $40,000 loan from the M Trust on 3 March 2008 under an agreement entered into between Robert and the trustee of the M Trust prior to Robert repaying the $30,000 loan on 28 February 2008. In this case, the repayment made by Robert on 28 February 2008 will not be taken into account and Robert may be treated as receiving an unfranked dividend of $30,000, subject to the distributable surplus of Bob Pty Ltd.