According to 109N of Income Tax Assessment Act 1936 (ITAA 1936), if certain criteria are met, the company will not be deemed to have paid a dividend to the individual receiving the 'loan' or 'payment'.
These conditions include:
1. The loan agreement was made in writing;
2. The rate of interest rate equals or exceeds the bench mark interest rate;
3. The term of the loan does not exceed the term as follows:
- - 25 years provided the loan is secured by a mortgage over real property;
- - 7 years for any other loan.
4. The loan agreement must be in place before lodgement day of the income tax return.