• Amount of the dividend

    The amount treated as a dividend for a loan that has not been put on a qualifying commercial footing before the private company's lodgment day, or is not otherwise an excluded loan, is the amount of the loan that has not been repaid before the lodgment day, subject to the private company's distributable surplus.

    Where a loan is put on a qualifying commercial footing before the private company's lodgment day, a deemed dividend may arise in subsequent years if the required minimum yearly repayment is not made. The amount treated as a dividend differs depending on the year of income in which the required minimum yearly repayment is not made.

    • For income years preceding 2006-07, the dividend is the entire amount of the loan that remains unpaid at 30 June, subject to the private company's distributable surplus.
    • For 2006-07 and later income years, the amount treated as a dividend is the amount by which the payments made to the company in the current year for the loan falls short of the required minimum yearly repayment for that year, subject to the private company's distributable surplus.

    A loan is put on a qualifying commercial footing if it is documented in writing and meets the minimum interest rate and maximum term criteria. See Loans made under written agreements.

    The amount of the required minimum yearly repayment is explained below under the heading How do you calculate the minimum yearly repayment for the income year ended 30 June 2010?

    If a loan is made in the previous year of income in the course of winding-up a company, the amount treated as a dividend is the amount of the loan that has not been repaid at the end of the current income year, subject to the private company's distributable surplus.

    Example 3

    On 1 January 2007, ABC Pty Ltd made a cash advance of $10,000 to Peter, a shareholder of ABC Pty Ltd. ABC Pty Ltd lodged its income tax return for the 2006-07 income year on 28 February 2008. At that date, Peter had repaid an amount of $2,000 and the loan had not been put on a qualifying commercial footing.

    The amount treated as a dividend on 30 June 2007 is the amount of the loan not repaid before the lodgment day (that is $8,000) subject to ABC Pty Ltd's distributable surplus.

    Amounts treated as dividends under Division 7A are generally not frankable, even though they are taken to be paid out of the private company's profits. However, there are exceptions. For more information, refer to the fact sheet Division 7A - franking implications.

    Where an amount is taken to be a dividend under Division 7A in the 2001-02 or later income years because of an honest mistake or an 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 this dividend - see the fact sheet Division 7A - exercise of Commissioner's discretion under section 109RB to disregard the operation of Division 7A or allow a deemed dividend to be franked.

      Last modified: 27 Jul 2016QC 17341