Hi @dvaquirk,
A director loan to your company can be structured in several ways. For companies with turnover under $20 million, there's a carve-out allowing related party 'at call' loans to be treated as debt interests rather than equity interests. The loan can be repaid as a lump sum at the end of 2 years, earlier if you choose, or set up as an at call loan.
The loan can be interest-free or interest-bearing. If you want the 'at call' loan to qualify as a debt interest under the debt and equity rules, you need to either formalise it with a maximum term of 10 years or less, or if it has no fixed term, it needs to pay an arm's length interest rate. You should document the loan properly with these terms.
When the company repays the loan to you as director, there's no tax payable on the principal repayment in your personal income tax return. The repayment is a return of your capital, not assessable income.
You need to maintain proper documentation including:
- a legally binding loan agreement
- company minutes or resolutions approving the loan
- accounting records for the loan, and
- evidence of repayments.
The loan should be recorded in the company's financial statements, typically as a liability under 'director loans' or 'related party loans'. If structured as a debt interest, any interest payments by the company may be deductible but cannot be franked.
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