Shareholders' Loan Agreements
We can draft a written loan agreement, for loans to Shareholders of Private Companies and Corporate Limited Partnerships, so they are treated as excluded loans under Division 7A of Part III of the Income Tax Assessment Act.
Division 7A Ruling
Division 7A of Part III of the Income Tax Assessment Act is an integrity measure aimed at preventing private companies from making tax-free distributions of profits to shareholders (or their associates). In particular, advances, loans and other payments or credits to shareholders (or their associates) are, unless they come within specified exclusions, treated as assessable dividends to the extent that the private company has a distributable surplus.
Loans or payments will be treated as excluded loans if they are covered by an appropriate written loan agreement which provides for a maximum term, a minimum interest rate and minimum annual repayment as prescribed by Division 7A.
What we provide
We are able to supply a solicitor prepared loan agreement drafted to suit your client's specific requirements. Our loan agreement documentation includes two bound copies of the loan agreement and minutes of meeting of directors approving the loan.
Please complete our Loan Agreement Order Form to initiate the preparation of a loan agreement or contact us if you would like futher information.
Further Information
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.
In June 2010 the ruling was amended to include Corporate Limited Partnerships as well as Private companies.
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.
Please review the FAQ from ASIC for further information.