Division 7A - loans by private companies
About this fact sheet
This fact sheet provides more information about loans made by private companies to shareholders and associates of shareholders that may be taken to be a dividend under Division 7A of Part III of the Income Tax Assessment Act 1936 (Division 7A).
For an overview of Division 7A and the meaning of 'associate', refer to the fact sheet Division 7A - overview.
Division 7A applies to payments made, loans made and debts forgiven by:
- a non-resident private company to an Australian resident shareholder (or their associate)
- closely-held corporate limited partnerships in the same way it applies to private companies but only for payments made, loans made and debts forgiven on or after 1 July 2009. For more information, refer to Division 7A - closely held corporate limited partnerships.
A private company may be taken to pay a dividend to you at the end of the company's income year if it lends you an amount during the year when you are a shareholder or an associate of a shareholder of the company. If the loan is made after you cease to be a shareholder or their associate, it may still be a dividend if a reasonable person would conclude that the loan was made because you were a shareholder or their associate at some time.
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.
In this fact sheet, a reference to a shareholder or their associate is also a reference to:
- an entity that has been a shareholder
- an entity that has been an associate of a shareholder.
Division 7A may also apply to loans made by trustees to a shareholder or an associate of a shareholder of a private company where the company is presently entitled to an amount from the net income of the trust estate and the whole of that amount has not been paid by a specified date. However, the rules in Subdivision EA do not apply in all cases where there is an unpaid present entitlement. For more information, refer to the fact sheets Division 7A - trust amounts treated as dividends - overview and Division 7A - trust amounts treated as dividends - payments.
Division 7A may also apply to loans made by private companies to a shareholder or an associate of a shareholder through interposed entities. For more information, refer to the fact sheet Division 7A - payments and loans through interposed entities.
Ensure loans comply with Division 7A
Watch this video to learn about complying loans under Division 7A.