Division 7A (s 109B to 109ZE) ITAA 1936 applies generally to amounts paid, lent, or forgiven on or after 4 December 1997 by a private company to certain associated entities (including individuals), to treat such amounts as dividends. 

Division 7A is a self-assessment provision that applies automatically when the relevant conditions are met. It does not require the Commissioner to act. It is an extremely wide provision, and may apply notwithstanding it’s unintentional or inadvertent application.

Section 109D of Division 7A of Income Tax Assessment Act 1936 (ITAA 1936), states that a loan includes the following:

1. An advance of money;

2. A provision of credit or any other form of financial accommodation;

3. A payment of an amount for, on account of, on behalf of or at the request of, an entity, if  there is an express or implied obligation to repay the amount; and

4. A transaction (what ever its terms or form) which in substance effects a loan of money.

The Australian Taxation Office (ATO) also states that the loan is made to an entity at the time the amount of the loan is paid to the entity by way of loan, or anything described above is done in relation to the shareholder or their associate.

If you would like to discuss further please contact us:

McNamara & Company - Chartered Accountants, located minutes from the Melbourne CBD
www.mcnamaraandco.au/contact-us
Phone +61 3 9428 1062
Email admin@mcnamaraandco.au

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