• Failure to make the required minimum yearly repayment on an amalgamated loan in the year of forgiveness

    If the debt forgiven was an amalgamated loan, and in the income year the forgiveness occurred the amount paid to the private company was less than the required minimum yearly repayment:

    For income years preceding the 2006-07 income year

    The amount of the amalgamated loan treated as a dividend is taken to be the amount of the loan that has not been repaid at the end of the income year.

    The forgiveness of the debt is not treated as a dividend because the amount has been taken to be a dividend under another Division 7A provision - the provision relating to amalgamated loans.

    For 2006-07 and later income years

    The forgiveness of the debt is treated as a dividend. The amount of the dividend is:

    • the amount of the amalgamated loan that has not been repaid at the time of the forgiveness

    less

    • any amount treated as a dividend in an earlier income year for the loan due to a failure to make the required minimum yearly repayment in that year. Note: This reduction could only occur from the 2007-08 year because the 2006-07 year is the first year in which a shortfall in a minimum yearly repayment may be treated as a dividend. For more information, refer to the fact sheet Division 7A - loans by private companies.

    In either case, the amount treated as a dividend is also limited by the private company's distributable surplus in the relevant income year - refer to the fact sheet Division 7A - distributable surplus.

      Last modified: 12 Aug 2010QC 17349