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Div 7A Loans

Discussion in 'Accounting, Tax & Legal' started by DaveA, 15th Jan, 2008.

  1. DaveA

    DaveA Well-Known Member

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    Probably a more technical question with relation to the Div 7a loans and the whole un franked dividend amount...

    Anyway with the use of a loan agreement between the parties, does this mean that you are able to lend money with out it be deemed a div?

    This is highly advantagous for anyone over the 31.5% tax rate as you lend the money, and you get it into your hands with only paying the company tax.

    Yes there are draw backs, like you have to pay interest, but this is only a transfer of wealth if you are the sole shareholder of the company, im also reading it as you have to pay part of the loan back each year, but it seems (if the company has it) you can borrow the amount you need (in a new loan) and use that money to make the payment from loan 1....

    does anyone know in practice if it works that way...
     
  2. MattR

    MattR Well-Known Member

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    The loans need to be repaid with P&I. If the loan is unsecured then it can only be for 7 years, if secured then for 25 years.

    Your proposal can work if each loan is documented correctly, but I for one wouldn't encourage it.
     
  3. tonyused

    tonyused Active Member

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    Any payment can be converted to a loan as long as it is done before the compay's lodgement date.

    And as long as its a written agreement meeting all the qualifications set under Division 7A loan agreements it should be OK.
     
  4. DaveA

    DaveA Well-Known Member

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    hmmm so if you are super efficant with your book keeping then theres a good chance you can keep redrawing the capital each year to pay the loan/principal back each year...

    You may not recommend it but would it be a process that James Packer may take with his own consolidated companys.... (by the way id love to find out who deals with his personal tax affairs...)
     
  5. Nigel Ward

    Nigel Ward Team InvestEd

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    I heard it was Mark Liebler at Arnold Bloch Leibler with Atanskovic Hartnell also involved...but that could just be rumour.
     
  6. Rob G.

    Rob G. Well-Known Member

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    The reason its not recommended is that if you stuff it up, not only is it a deemed dividend to you, but there is a franking account debit - effectively a double taxed distribution for the shareholder.

    Many Trustees don't realise that an unpaid present entitlement to a corporate beneficiary can be deemed a loan to the trust - hence subsequent non-commercial trust loans (or in some cases capital distributions) to shareholders may get caught.

    A bit messy ...

    Cheers,

    Rob
     
  7. GavinC

    GavinC Active Member

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    Being super efficient with your book keeping probably would not help you, since s109R specifically stops you repaying old loans with new ones.