Loans that are excluded because a written loan agreement has been put in place (before the private company’s lodgment day and the criteria for minimum interest rate and maximum term are satisfied), become what is called an amalgamated loan for the purposes of Division 7A. An amalgamated loan comprises all constituent loans made during the income year that have the same maximum term. In subsequent income years, minimum yearly repayments based on a formula in the law are required. Failure to meet the minimum yearly requirement can result in a deemed dividend (subject to the exercise of a relieving discretion in undue hardship cases) of the amount of the shortfall in the minimum yearly repayment. There are provisions which prevent temporary repayments being made and the Commissioner has a discretion to extend the period for repayments of amalgamated loans. Provisions also provide for the refinancing of excluded loans in certain circumstances. Repayment in full of a loan before the company’s lodgment date (or getting it within an exempted category, such as meeting the criteria in section 109N for minimum interest and maximum term) will avoid deeming of a dividend. However, there are provisions that seek to ensure that certain payments to the company are not treated as repayments, namely: a repayment, that when made, a reasonable person would conclude was intended to be followed by a subsequent reborrowing; and a borrowing, that a reasonable person would conclude was obtained in order to make a subsequent repayment (from 1 July 2009). A deemed dividend is unfrankable, except: where it arises because of a law obligation’; or ‘family where the Commissioner exercises a discretion to allow the dividend to be franked. Deemed dividends to be paid in 200506 or an earlier income year gave rise to an automatic franking debit to the private company’s franking account. The Commissioner has a relieving discretion, which may be exercised to avoid the consequences of Division 7A from applying where the Division 7A result arises because of an honest mistake or inadvertent omission. In making a decision, the Commissioner must take into account a range of factors and can make the decision subject to conditions (for example, making of a specified payment within a specified time). Division 7A also includes rules dealing with the interaction between Division 7A and fringe benefits tax.
Loans that are excluded because a written loan agreement has been put in place (before the private company’s lodgment day and the criteria for minimum interest rate and maximum term are satisfied), become what is called an amalgamated loan for the purposes of Division 7A. An amalgamated loan comprises all constituent loans made during the income year that have the same maximum term. In subsequent income years, minimum yearly repayments based on a formula in the law are required. Failure to meet the minimum yearly requirement can result in a deemed dividend (subject to the exercise of a relieving discretion in undue hardship cases) of the amount of the shortfall in the minimum yearly repayment. There are provisions which prevent temporary repayments being made and the Commissioner has a discretion to extend the period for repayments of amalgamated loans. Provisions also provide for the refinancing of excluded loans in certain circumstances. Repayment in full of a loan before the company’s lodgment date (or getting it within an exempted category, such as meeting the criteria in section 109N for minimum interest and maximum term) will avoid deeming of a dividend. However, there are provisions that seek to ensure that certain payments to the company are not treated as repayments, namely: a repayment, that when made, a reasonable person would conclude was intended to be followed by a subsequent reborrowing; and a borrowing, that a reasonable person would conclude was obtained in order to make a subsequent repayment (from 1 July 2009). A deemed dividend is unfrankable, except: where it arises because of a ‘family law obligation’; or where the Commissioner exercises a discretion to allow the dividend to be franked. Deemed dividends to be paid in 200506 or an earlier income year gave rise to an automatic franking debit to the private company’s franking account. The Commissioner has a relieving discretion, which may be exercised to avoid the consequences of Division 7A from applying where the Division 7A result arises because of an honest mistake or inadvertent omission. In making a decision, the Commissioner must take into account a range of factors and can make the decision subject to conditions (for example, making of a specified payment within a specified time). Division 7A also includes rules dealing with the interaction between Division 7A and fringe benefits tax.