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Re: Div 7A loan

Devotee

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Replies 2

Hi please assist with the threequestions below

 

q1 Is there a requirement to submit the signed Div 7A agreement to ATO together with the CTR or any other means ?

q2 What is the date of effect on which the new changes to Div 7A would take effect ( new changes to term being max 10 years etc)

 

q3 ATO mentions that a complying loan agreement must be in place by the due date of lodgement of the company return. ( in most cases 15 th May of next year) What If an entity is behind its lodgements ?

 

E.g loan incurred in 208-2019  but  the return is only lodged after 15 th May 2020 ( 18 July 2020)

 

In such a case only two options are there

 

a) backdate and sign ( which I think is not allowed)

b) include the actual date

 

But if option b is used would it be considered as a non-complying loan and subjected to penalties ?

 

Thanks a lot

 

 

1 ACCEPTED SOLUTION

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Most helpful response

Devotee Registered Tax Practitioner

Replies 1

q1 Is there a requirement to submit the signed Div 7A agreement to ATO together with the CTR or any other means ?

 

No.

 

q2 What is the date of effect on which the new changes to Div 7A would take effect ( new changes to term being max 10 years etc)

Law not passed yet.

 

q3 ATO mentions that a complying loan agreement must be in place by the due date of lodgement of the company return. ( in most cases 15 th May of next year) What If an entity is behind its lodgements ?

 

A loan which is made under a written agreement before the private company's lodgment date and meets the minimum interest rate and maximum term criteria, will not be treated as a dividend in the income year the loan is made. [ATO]

 

109D(6) When is the lodgment day?

In this Division, the lodgment day for a private company’s year of income is the earlier of:

(a) the due date for lodgment of the private company’s return of income for the year of income; and

(b) the date of lodgment of the private company’s return of income for the year of income.

 

Note:   For the lodgment day for a private company that is a non-resident, see section 109BC.

In such a case only two options are there

a) backdate and sign ( which I think is not allowed)     

b) include the actual date

 

a)  will get you deregistered, or worse

b)  would not be a complying loan

 

Better to get complying loan agreements in place before a Div 7A problem exists  -  the loan does not have to specify a $ amount.

 

My company supplier includes in company constitution.

Best to put the loan agreement in place if there is any chance of a Div 7A event happening.

 

But if option b is used would it be considered as a non-complying loan and subjected to penalties ?

The amount would be a deemed dividend.

 

2 REPLIES 2

Most helpful response

Devotee Registered Tax Practitioner

Replies 1

q1 Is there a requirement to submit the signed Div 7A agreement to ATO together with the CTR or any other means ?

 

No.

 

q2 What is the date of effect on which the new changes to Div 7A would take effect ( new changes to term being max 10 years etc)

Law not passed yet.

 

q3 ATO mentions that a complying loan agreement must be in place by the due date of lodgement of the company return. ( in most cases 15 th May of next year) What If an entity is behind its lodgements ?

 

A loan which is made under a written agreement before the private company's lodgment date and meets the minimum interest rate and maximum term criteria, will not be treated as a dividend in the income year the loan is made. [ATO]

 

109D(6) When is the lodgment day?

In this Division, the lodgment day for a private company’s year of income is the earlier of:

(a) the due date for lodgment of the private company’s return of income for the year of income; and

(b) the date of lodgment of the private company’s return of income for the year of income.

 

Note:   For the lodgment day for a private company that is a non-resident, see section 109BC.

In such a case only two options are there

a) backdate and sign ( which I think is not allowed)     

b) include the actual date

 

a)  will get you deregistered, or worse

b)  would not be a complying loan

 

Better to get complying loan agreements in place before a Div 7A problem exists  -  the loan does not have to specify a $ amount.

 

My company supplier includes in company constitution.

Best to put the loan agreement in place if there is any chance of a Div 7A event happening.

 

But if option b is used would it be considered as a non-complying loan and subjected to penalties ?

The amount would be a deemed dividend.

 

Devotee

Replies 0

Hi @Bruce4Tax Thank you very much for taking time to clarify my doubts.