Division 7A may apply to any payments or other benefits provided by private companies directly or indirectly to their shareholders or their associates, including the following transactions and events:
- private use of company assets
- transfer of company assets
- loans and other forms of credit
- writing off (forgiving) a debt
- payments or the loans by a trust where a company has unpaid present entitlements
- payments and loans through interposed entities.
Payments or other benefits deemed as dividends under Division 7A can be treated as assessable income of the shareholder or their associate in the form of unfranked dividends.
If the payment or other benefit is provided to a shareholder or their associate in their capacity as an employee or an associate or an employee of the private company, Fringe Benefits Tax (FBT) can apply to the payment or other benefit (see Related tax issues).
A payment or loan that's potentially subject to Division 7A isn't treated as a dividend where:
- it's fully repaid or converted to a Division 7A complying loan by the company's lodgment day for the income year in which the payment or loan occurs
- it's already treated as assessable income (or excluded from being assessable income) under another part of the income tax law.
You may be able to use the Division 7A calculator and decision tool to:
- determine whether a payment or other benefit provided by a private company to a shareholder or their associate will give rise to a dividend
- calculate the minimum yearly repayment required if there is a complying loan.
Find out about:
- Loans and other forms of credit
- Private use of assets
- Trust payments and other benefits
- Transactions through interposed entities
- Writing off (forgiving) a debt
- Tax treatment of Division 7A dividends
- Payments and other benefits not affected
The treatment of a payment or other benefit under Division 7A depends on whether it's categorised by the legislation as either a:
- payment (see section 109C) – note that the legislation treats as a payment the transfer of a company asset to, or the private use of a company asset by, a shareholder or their associate (whether or not this involves a formal arrangement such as a lease or licence, or merely an informal right to use)
- loan ( see section 109D), or
- debt forgiveness (see section 109F).
- Division 7A - Payments by private companies
- Division 7A - loans by private companies
- Division 7A - debt forgiveness by private companies