Income tax: what is the benchmark interest rate applicable for the year of income commencing on 1 July 2000 for the purposes of Division 7A of Part III of the Income Tax Assessment Act 1936 ('the Act') and how is it used?
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FOI status:may be releasedFOI number: I 1022030
|The number, subject heading, date of effect and paragraph 1 to 3 of this Taxation Determination are a 'public ruling' for the purposes of Part IVAAA of the Taxation Administration Act 1953 and are legally binding on the Commissioner. The remainder of the Determination is administratively binding on the Commissioner. Taxation Rulings TR 92/1 and TR 97/16 together explain how a Determination is legally or administratively binding.|
|Date of Effect|
|This Determination applies to years commencing both before and after its date of issue. However, this Determination does not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of the Determination (see paragraphs 21 and 22 of Taxation Ruling TR 92/20).|
- determine if a loan made in the 1999-2000 income year is taken to be a dividend (paragraph 109N(1)(b) and subsection 109D(1)); and
- calculate the amount of the minimum yearly repayment for the 2000-2001 income year on an amalgamated loan taken to have been made prior to 1 July 2000 (subsection 109E(5)).
5. A private company makes an unsecured loan to a shareholder on 1 July 1999. The loan is made under a written agreement which specifies that the rate of interest payable for all future years must equal or exceed that required by paragraph 109N(1)(b) of the Act. The term of the loan is 5 years. For the year ended 30 June 2000, as all the requirements of section 109N are met, the loan is not treated as a dividend under Division 7A.
If the amount of the loan not repaid at 30 June 2000 is $100,000, the minimum yearly repayment required for the 2000-2001 year of income is calculated as follows:
((Amount of the loan not repaid by the end of the previous year of income * Current year's benchmark interest)/(1-((1/(1+Current year's benchmark interest))^Remaining term)))
((100,000 * 0.078) / (1-((1 / (1 + 0.078))^5)))
If repayments made in the 2000-2001 year of income equal or exceed the minimum yearly repayment, the amount of the loan not repaid at the end of the year of income is not taken to be a dividend for the purposes of subsection 109E(1).
Commissioner of Taxation
10 January 2001
Not previously issued in draft form.
benchmark interest rate
private company distributions
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