Wednesday, 9 April 2014

Div. 7A Loans (Borrowing From Your Company)

 Div. 7A Loans (Borrowing From Your Company)from www.bantacs.com.au


Div. 7A Loans (Borrowing From Your Company)
To avoid taxpayers paying only the 30% company tax rate on their earnings and then using the money for private purposes, Division 7A was introduced to deem these arrangements a dividend payment i.e. taxable in the hands of the person who is using the funds. To avoid the funds being deemed a dividend you can enter into an arrangement to borrowing the money from the company and pay interest. The ATO sets the interest rate each year and it is always higher than you would expect to pay a bank if you provide real estate as security.
There is a way out to make the day to day drawings manageable. As long as the loan is fully paid back to the company by the time the company’s tax return is due to be lodged then Division 7A will not apply. But don’t try to borrow this amount again the next day. The legislation prevents you paying the loan back on the day of lodgement of the tax return then just borrowing it back again, effectively giving you the use of the money 364 days of the year without paying the company interest. Here is a link to the relevant section, http://law.ato.gov.au/atolaw/view.htm?docid=PAC/19360027/109R though; you do get a year to put the loan agreement in place according to ID 2012/60 http://law.ato.gov.au/atolaw/view.htm?docid=%22AID%2FAID201260%2F00001%22