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Where a complying Division 7A loan facility agreement is in place (s109N ITAA 1936), and the minimum yearly repayments (MYR) are not met, subject to there being a distributable surplus, the shortfall on the MYR will be treated as a deemed unfranked dividend assessable to the borrower (s109E ITAA 1936).
This deemed dividend amount, does not reduce the balance of the loan. For example, if no MYR’s are ever made, the entirety of the loan remains outstanding on the balance sheet of the company, despite it having been taxed to the borrower as deemed dividends.
One question this raises, is what happens when the 7-year loan term has expired for Division 7A purposes, but the loan remains on the balance sheet of the company. This scenario can create additional costs to a client, which are considered in the below:
If you have any questions, please feel free to reach out.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to your circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.
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