• Loans made under written agreements

    A loan which is put under a written agreement before the private company's lodgment day and which meets the minimum interest rate and maximum term criteria (explained below), will not be treated as a dividend in the income year the loan is made.

    There is no prescribed form for the written agreement. However, as a minimum, the agreement should identify the parties, set out the essential terms of the loan (that is the amount of the loan, the requirement to repay, the interest rate payable, and the term of the loan) and be signed and dated by the parties.

    For 2003-04 and earlier income years, the written agreement must be in place at the time the loan is made. However, Practice Statement Law Administration PS LA 2005/3 (GA) sets out an administrative concession for the 2003-04 income year.

    A written agreement could be drafted to cover loans which will be made to a shareholder or their associate for a number of income years into the future.

      Last modified: 27 Jul 2016QC 17341