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Div 7a Loan

Newbie

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If there is a company with an old division 7a loan, and the current year has nil distributable surplus, therefore the deemed dividend (annual repayment) is also nil in the current year (until future years when there is distributable surplus again), does interest continue to accrue on the loan in the current year or not? Thank you for any clarification. 

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ATO Certified Response

Community Moderator

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Hi @DavidHumphreys 

 

Interest will continue to accrue on the loan for the  income years that the loan remains outstanding, regardless of whether there is a distributable surplus.

 

If the amount paid to the company falls short of the minimum yearly repayment (MYR) for an income year, the MYRs in future income years will be greater than they would otherwise have been. Refer to ATO ID 2013/36  on how the MYR for a subsequent income year is calculated where a shortfall in the MYR for the current year gives rise to a deemed dividend.

 

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Most helpful response

ATO Certified Response

Community Moderator

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Hi @DavidHumphreys 

 

Interest will continue to accrue on the loan for the  income years that the loan remains outstanding, regardless of whether there is a distributable surplus.

 

If the amount paid to the company falls short of the minimum yearly repayment (MYR) for an income year, the MYRs in future income years will be greater than they would otherwise have been. Refer to ATO ID 2013/36  on how the MYR for a subsequent income year is calculated where a shortfall in the MYR for the current year gives rise to a deemed dividend.