Loans to Shareholders of Private Companies

Division 7A of Part III of the Income Tax Assessment Act will ensure that advances, loans and credits by private companies to shareholders will be treated as assessable dividends unless the loans or payments are excluded from Division 7A.

Loans or payments will be treated as excluded loans if they are covered by an appropriate loan agreement which provides for a maximum term, a minimum interest rate and minimum annual repayment as prescribed by Division 7A.

We are able to supply at a cost of $176 (including GST) a solicitor prepared loan agreement drafted to suit your clients specific requirements. Our loan agreement documentation includes two bound copies of the loan agreement and minutes of meeting of directors approving the loan.

Although Division 7A came into effect from 4 December, 1997 and many private companies may have failed to enter into appropriate loan agreements with shareholders to date, the Commissioner has a discretion to disregard the failure to make minimum yearly repayments in certain circumstances.

To avoid loans to shareholders or their associates being treated as dividends under Division 7A of the Act it is essential that the directors of private companies take immediate action to cover any future loans or payments to shareholders by an appropriate loan agreement.
A loan agreement to be effective must be completed before the loan is made.

We invite you to complete our Loan Agreement Order Form and FAX to 02/9436 0025 to initiate the preparation of a loan agreement. Please telephone John Andrews on 02/9437 5344 for further information.