Hi ATO Community,
I have a question regarding the calculation of Division 7a interest.
In the ATO guide "Loans by private companies", the ATO states that "Where a repayment is made before the private company's lodgment day for the year in which the amalgamated loan is made, the principal amount at 1 July of the first income year after the loan is made, is not the sum total of the constituent loans at 1 July. Rather, it is the sum of the constituent loans immediately before the lodgment day. For this purpose, payments made before lodgment day are taken to have been made in the year the amalgamated loan is made"'.
Using example 6 in the same guide, this would indicate that the balance of the amalgamated loan on 1/07/2014 is taken to be $55,000, reflecting the initial loans of $75,000 taken during the 2013/14 financial year, less the repayment on 31/08/2014 of $20,000 (which occurred prior to the lodgement of the company's 2014 tax return).
However, in example 7 of the same guide, the interest is calculated on $75,000 from 1/07/2014 to 31/08/2014.
If the amount of the amalgamated loan is the sum of the constituent loans that have not been repaid before the lodgment day for the year of income in which the amalgamated loan is made, it is correct to charge interest on $75,000 instead of $55,000?
Many thanks for your assistance, it is greatly appreciated.
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