Commissioner's discretion not to treat an amalgamated loan as a dividend

If you make a repayment or an amalgamated loan to the private company that is less than the minimum yearly repayment, and you satisfy the Commissioner that the minimum yearly repayment was not met because of circumstances beyond your control (and you would suffer undue hardship if the loan were treated as a dividend), the private company will not be taken to pay you a dividend.

The Commissioner must consider:

  • your ability to repay the loan at the end of the income year in which the amalgamated loan was made
  • any circumstances that reduced your ability to repay the loan
  • whether you took all reasonable steps to make the minimum yearly repayment for the current income year
  • whether you made payments equal to the amount of the deficiency as soon as possible after the current income year.

If you consider you will suffer undue hardship if an amount is treated as a dividend, apply in writing to the ATO addressing the above points.

In addition to the above discretion, from the 2006-07 year the Commissioner may disregard a deemed dividend and extend the period for repayments where the shareholder or their associate was unable to make the minimum yearly repayments because of circumstances beyond their control. The Commissioner will specify a later time by which the minimum yearly repayments must be made and, provided the amount of the shortfall is paid within the specified time, the shortfall will not be taken to be a dividend.

Alternatively, where a deemed dividend arises under Division 7A in 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), or allow the private company taken to pay the dividend to choose to frank the dividend.

For more information, refer to the following fact sheets:

    Last modified: 27 Jul 2016QC 17341