ATO Interpretative Decision

ATO ID 2002/741

Income Tax

Amalgamated Loans and executors of deceased estates
FOI status: may be released

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If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Is a private company taken, under section 109E of the Income Tax Assessment Act 1936 (ITAA 1936), to have paid a dividend to the taxpayer, the executor of the deceased estate of a shareholder in the company, in respect of a loan the company made to the shareholder before he died?

Decision

No. The private company is not taken to have paid a dividend to the taxpayer, the executor of the deceased estate of the shareholder.

Facts

Under a written agreement entered into in the income year ended 30 June 1998 by the private company and one of its shareholders, the private company made a loan to that shareholder.

The written agreement met the criteria concerning minimum interest rate and maximum term contained in section 109N of the ITAA 1936.

The loan is an amalgamated loan for the purposes of subsection 109E(3) of the ITAA 1936.

The shareholder died during the income year ended 30 June 1999, before any repayments were due to be made under the agreement.

No repayments in relation to the loan were made in the 1998 to 2001 income years by either the shareholder or the executor of his deceased estate.

Reasons for Decision

Subsection 109E (1) of the ITAA 1936 states:

'A private company is taken to pay a dividend to an entity at the end of one of the private company's year of income (the "current year") if:

(i)
the private company made an amalgamated loan to the entity in an earlier year of income...' [emphasis added]

The entity to whom the private company is taken to have paid the dividend must be the same entity to whom the private company made the amalgamated loan.

For subsection 109E(1) of the ITAA 1936 to apply, the private company must have made the loan to the executor of the deceased estate.

Accordingly, as the private company made the loan to the shareholder, the executor of the shareholder's deceased estate is not treated as having received a deemed dividend in respect of the amalgamated loan.

Date of decision: 26 June 2002

Year of income: 30 June 1999, 30 June 2000, 30 June 2001

Legislative References:
Income Tax Assessment Act 1936
section 109E
section 109N

Keywords
Private company distributions
Deemed dividends
Shareholder loans

Siebel/TDMS Reference Number: DW309695; 1-5BYL0YW; 1-AX9H6ED

Business Line: Private Groups and High Wealth Individuals

Date of publication: 31 July 2002
Date reviewed: 22 February 2017

ISSN: 1445-2782

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