Income tax: what is the benchmark interest rate applicable for the year of income that commenced on 1 July 2014 for the purposes of Division 7A of Part III of the Income Tax Assessment Act 1936 and how is it used?
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1. For the income year that commenced on 1 July 2014, the benchmark interest rate for the purposes of sections 109N and 109E of the Income Tax Assessment Act 1936 is 5.95% per annum.
2. This benchmark interest rate is relevant to private company loans made or deemed to have been made after 3 December 1997 and before 1 July 2014; and to trustee loans made after 11 December 2002 and before 1 July 2014. It is used to:
- determine if a loan made in the 2013-14 income year is taken to be a dividend (paragraph 109N(1)(b) and as applicable, subsection 109D(1) or section 109XB), and
- calculate the amount of the minimum yearly repayment for the 2014-15 income year on an amalgamated loan taken to have been made prior to 1 July 2014 (subsection 109E(5)).
3. This Determination only applies where a private company or trustee, which either made the loan or is taken to have made the amalgamated loan, has an income year that commenced on 1 July 2014. (Taxation Determination TD 2001/18 explains how to find the benchmark interest rate for private companies with substituted accounting periods.)
4. A private company makes an unsecured loan of $100,000 to a shareholder on 1 July 2013. 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). The term of the loan is 5 years. For the year ended 30 June 2014, as all the requirements of section 109N are met, the loan is not treated as a dividend under Division 7A of Part III. No repayments were made before the private company's 'lodgment day' for the 2013-14 income year. Therefore, the minimum yearly repayment required for the 2014-15 year of income is calculated as follows:
6. The 'lodgment day' is the earlier of the due date for lodgment and date of lodgment of the lender's income tax return for the income year in which the loan is made. The 'lender' is the private company or trustee which made the loan that is subject to Division 7A Part III.
Date of effect
Commissioner of Taxation
16 July 2014
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All subsequent legislative references are to the Income Tax Assessment Act 1936 unless otherwise indicated.
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