Income tax, CGT and entities

Division 7A

Division 7A is a part of the Income Tax Assessment Act 1936 that stops private companies from passing profits to shareholders or their associates tax-free in the form of payments, loans or forgiven debts. A payment or loan that falls within the Division can be treated as an unfranked dividend to the shareholder, unless the loan is put on complying terms under a written agreement with a minimum yearly repayment at the benchmark interest rate the ATO sets. Private company benefit rules apply to amounts owed to the company by shareholders and their associates, including through trusts. Practices watch the balance of shareholder loans, minimum repayments and agreements before the company's lodgment date.

General information, not tax advice. The rules change, so check the source page above for the current position. Fedix is developed by Tax7 R&D Pty Ltd.