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_item(Initiate)Initiate
7 June 2021

I am a sole director and a 100% shareholder of a private company.

If I loan to the company $100,000 and the company make a profit of $20,000, I wonder if the company repay the director loan of $100,000 without it being an assessible income to me. For example, if a tax law reads that the repayment of $100,000 must include a profit of $20,000 (I heard that a trust must distirubte profits first), then $20,000 of the $100,000 repayment would be assessible income to me.

If there is such a tax law, I wonder if i can prevent the repayment from being an assessmbie income to me by letting the company to make repayment in a year that the company does not make any profit (even if the company hold profits in previous years).

Website link relating to this question would be appreciated. Thank you for any help in advance.

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3 replies
2,668 views
3 replies

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Most helpful reply

JasonT(Community Support)Community Support
9 June 2021

Hi @item,

If you're a shareholder/director and you lend your own money to your company, this would usually be recorded in the company's records as a loan, which will be a liability for the company. When the company pays back the principal of the loan, the payments will reduce the amount of the loan, but this would not usually be a deduction for the company or assessable as income to you.

Any interest payments the company makes would be deductible to the company, and will also be assessable income to you. You should make sure that any interest paid by the company is in line with commercial rates.

At call loans

An 'at call' loan (or related party 'at call' loan) is a loan to a company, by a connected entity (including a controlling shareholder or director), that does not have a fixed repayment term and is repayable on demand by the connected entity (that is, the lender).

If a company has a GST turnover of less than $20 million, there is a carve-out - which means related party ‘at call' loans will be treated as being debt interests rather than equity interests.

For a more detailed explanation of connected entity at call loans (also referred to as 'credit shareholder loans' or 'related party loans'), refer to the debt and equity tests: guide to 'at call' loans.

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Most helpful reply

JasonT(Community Support)Community Support
9 June 2021

Hi @item,

If you're a shareholder/director and you lend your own money to your company, this would usually be recorded in the company's records as a loan, which will be a liability for the company. When the company pays back the principal of the loan, the payments will reduce the amount of the loan, but this would not usually be a deduction for the company or assessable as income to you.

Any interest payments the company makes would be deductible to the company, and will also be assessable income to you. You should make sure that any interest paid by the company is in line with commercial rates.

At call loans

An 'at call' loan (or related party 'at call' loan) is a loan to a company, by a connected entity (including a controlling shareholder or director), that does not have a fixed repayment term and is repayable on demand by the connected entity (that is, the lender).

If a company has a GST turnover of less than $20 million, there is a carve-out - which means related party ‘at call' loans will be treated as being debt interests rather than equity interests.

For a more detailed explanation of connected entity at call loans (also referred to as 'credit shareholder loans' or 'related party loans'), refer to the debt and equity tests: guide to 'at call' loans.

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