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Loans From A Private Company – Div 7A Implications

If you are a shareholder or an associate of a shareholder in a private company which makes a payment or loan to you or forgives a debt that you owe the company, the company may be taken under Division 7A to pay you a dividend. You may need to include this amount in your tax return as an unfranked dividend. In certain circumstances, the dividend may be franked.

There are exceptions and exclusions, for example:

Payments – these include the payment of genuine debts and payments to other companies;
Loans – these include where the loan is put on an agreement by a specified time, meeting minimum interest rate and maximum term criteria. In such cases, a deemed dividend does not arise so long as the required minimum yearly repayments are made in subsequent years.

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