• What is a loan?

    For the purposes of Division 7A, 'loan' has an extended meaning and includes:

    • an advance of money
    • a provision of credit or any other form of financial accommodation
    • a payment for you, on your account, on your behalf, or at your request if you have an obligation to repay the amount
    • a transaction (whatever its terms or form) that is the same as a loan of money.

    In addition to including ordinary loans, a 'loan' is defined to include the provision of credit or any other form of financial accommodation and transactions that in substance effect a loan of money.

    A loan is made to an entity at the time the amount of the loan is paid to the entity by way of loan, or anything described above is done in relation to the shareholder or their associate.

    From 2006-07, a payment can be converted to a loan before the end of the private company's lodgment day for the income year in which the payment is made. If this is done, for the purposes of Division 7A the private company is taken to have made a loan at the time the payment was made.

    A private company's 'lodgment day' is the earlier of the due date for lodgment or the date of lodgment of the private company's income tax return for the income year.

    If a private company makes one or more loans to you in an income year, it may be taken to make an amalgamated loan to you - see How do you calculate amounts required to repay an amalgamated loan?

    Example 1

    Terry Pty Ltd loans $20,000 to Ann, a shareholder of Terry Pty Ltd. The money is loaned to Ann on the basis that she pays it back when she can. The $20,000 is a loan from Terry Pty Ltd to Ann because it is an advance of money.

    Example 2

    In the 2007-08 income year, XYZ Pty Ltd pays the petrol expenses of a vehicle owned by shareholder Sally. Sally is under no express or implied obligation to repay the amount. Unless Sally converts the payment to a loan, the Division 7A provisions for payments apply. However Sally and XYZ Pty Ltd agree to convert the payment into a loan before the private company's lodgment day. The Division 7A provisions relating to loans now apply.

      Last modified: 27 Jul 2016QC 17341