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Re: Refinancing unsecured Div 7A complying loan - effective timing for s.109R purposes

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Company X has made a complying Div 7a unsecured loan to A, an associate, in 2017 income year. In 2020 income year, Company X registered a mortgage to secure the loan to extend the term to another 22 years.
 
1. Is the old unsecured loan taken to be refinanced in the previous income year a mortgage is registered (ie. 2019 year)?
 
2. If yes, does A still need to meet its minimum yearly repayment by physical cash payment or dividend from Company X in 2019 year? I know that refinancing can be considered loan repayment per section 109R.
 
Thanks for your input.
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Devotee

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My reading of 109R(6) is that you are able to substitute a 7 year with a 25 year (reduced by the duration elapsed on the 7 year loan at the point of refinancing).

 

In terms of the minimum repayments you still need to consider 109E.

 

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Devotee

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If you refinanced in 2020 - I dont see how it affects the minimum repayments of the existing 7A loan on foot for 2019...

 

 

 

 

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I was thinking that refinancing means the new secured loan would be a new loan as at 30 June 2019 and we would have until the company's lodgement date to sign a new loan agreement, secured over real property?

Are you saying the refinancing is effective in the same financial year the mortgage is registered?

Thanks for your clarification.
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Devotee

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The refinancing is fine but how have you dealt with the minimum repayment for FY2019?

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My question is really how subsection 109R(6) applies timing wise. Is it possible to argue under that subsection that the old loan was refinanced as at 30 June 2019? For refinancing the old loan is taken to be paid out. The new secured loan is then entered into by the company's lodgement date (say 15 May 2020). Is this possible?
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Most helpful response

Devotee

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My reading of 109R(6) is that you are able to substitute a 7 year with a 25 year (reduced by the duration elapsed on the 7 year loan at the point of refinancing).

 

In terms of the minimum repayments you still need to consider 109E.