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Private company loans

Discussion in 'Accounting, Tax & Legal' started by pchong, 13th Jun, 2012.

  1. pchong

    pchong New Member

    9th Jan, 2009
    Sydney, NSW
    Hello. I am one of five owners of a private company and am wondering if the following is possible.

    • In July each year, the company makes a LOAN to each owner (say, $100k each)
    • Each owner deposits the money in their personal home mortgage offset accounts
    • In June of the following year, each owner repays the loan.
    • Repeat in the next financial year
    So on every balance date, loans to shareholders are NIL.

    Will this trigger the "Private company loan" provisions? There is a rule which says a repayment (such as the one in June, above) will not be counted if when the repayment is made it is the shareholder's intention to obtain a similar loan. However, my accountant says this rule only applies once the private company loan provisions are triggered. By repaying the loan in June, he argues you never hit this trigger. Would appreciate confirmation.

    Is it necessary to pay interest given the loan is fully repaid by the lodgement date?

    Thank you.
  2. Terryw

    Terryw Well-Known Member

    9th Jun, 2006
    I am sure there will be FBT and tax issues, but have you considered the legal issues?

    A director has a fiduciary duty to the company and must not profit at the company's expense. If the company lends you interest free it will be losing out while you the director are benefiting. I am not saying it is not possible, but that you have to take care. It may be possible if full disclosed to shareholders at a shareholders meeting (even if you are the shareholders). Get some legal advice too.