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  • Loans treated as dividends

    Attention

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    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

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    If a private company makes a loan to a shareholder or associate in an income year and the loan is not fully repaid by the end of that income year, generally the outstanding amount of the loan will be regarded as a non-commercial loan. It will be treated as an unfranked dividend to the extent of the private company's distributable surplus-unless it satisfies the criteria of an excluded loan as explained in the section Excluded loans.

    A loan includes:

    • an advance of money
    • a provision of credit or any other form of financial accommodation
    • an amount paid for, on account of, on behalf of, or at the request of, a shareholder or associate where there is an express or implied obligation to repay the amount
    • a transaction that in substance effects a loan of money.

    As a general rule, loans in existence prior to 4 December 1997 will not be treated as a dividend under the relevant provisions unless they are altered by extending the term or increasing the amount of the loan.

    Example

    Vanessa is a shareholder in the private company, X Pty Ltd. Vanessa's credit card bills, totalling $10,000, are paid with company cheques throughout the income year and debited to her loan account. Interest is not payable on the balance of the loan account.

    If Vanessa repays the $10,000 to X Pty Ltd by the end of the company's income year, no amount will be treated as a deemed dividend. If she does not repay any of the $10,000, the full $10,000 will be treated as an unfranked dividend. If she repays $3,000, then $7,000 will be treated as an unfranked dividend.

    Last modified: 05 Dec 2006QC 16138