Loans treated as dividends
A loan is treated as a dividend if:
- a private company makes the loan to you during the private company's income year
- the loan is not fully repaid before the private company's lodgment day
- the loan is not an excluded loan
- you are a shareholder or an associate of a shareholder of the private company when the loan is made.
Some repayments are not taken into account for the purposes of determining whether the loan has been fully repaid - see Loan repayments.
If a loan is made in the course of winding-up a private company by a liquidator, the loan may be treated as a dividend if:
- the private company made the loan to you during the previous year of income
- the loan is not fully repaid by the end of the current year
- either you were a shareholder or an associate of a shareholder of the company when the loan was made, or a reasonable person would conclude that the loan was made because you were such a shareholder or associate at some time.
Loans made before 4 December 1997 will not be affected by Division 7A. However, where such a loan is varied on or after that day, either by extending the term of the loan or increasing the amount of the loan, the loan will be treated as if it were a new loan entered into on the day it is varied.
Loans made before 4 December 1997 may be affected by section 108 of the Income Tax Assessment Act 1936 which has been repealed or withdrawn with effect for the income year in which 1 July 2006 has occurred and for later years. For more information, refer to the fact sheet Division 7A - residual operation of section 108.