Related tax issues
If your transactions are subject to Division 7A, you may also need to consider:
Fringe benefits tax (FBT)
Division 7A does not apply to payments made to shareholders or their associates in their capacity as an employee or as an associate of an employee of a private company. However, such payments may be subject to FBT.
Division 7A does apply to loans and debt forgiveness provided to shareholders or their associates even where such benefits are provided in their capacity as an employee or as an associate of an employee. To avoid double taxation, such benefits are not subject to FBT.
Dividend imputation and franking credits
Payments and other benefits taken to be Division 7A dividends are generally unfrankable distributions unless they are provided under a family law obligation.
The Commissioner has a general discretion to allow a Division 7A dividend to be frankable if it arises because of an honest mistake or inadvertent omission (see ATO relief).
Payments and other benefits treated as Division 7A dividends are generally not subject to dividend withholding tax or PAYG withholding.
Family law settlements
Payments and other benefits provided by a private company to shareholders or their associates as a result of divorce or other relationship breakdowns may be treated as Division 7A dividends and are assessable income of the recipient. However, such payments or other benefits are treated as frankable dividends if provided under a family law obligation, such as a court order under the Family Law Act 1975, a maintenance agreement approved by a court under that Act or court orders relating to a de facto marriage breakdown.
If your transactions are subject to Division 7A, you may also need to consider related tax issues: fringe benefits tax, dividend imputation and franking credits, withholding tax and family law settlements.