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Australian Legal Templates

Division 7A Loan

Suitable For Use :NSW, QLD, VIC, WA,NT, ACT

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Division 7A Loan Agreement 

This agreement includes documents regarding borrowing money from a private company which can have serious pitfalls if not done correctly. Directors and shareholders often borrow money from their companies. Care must be taken so that the Australian Taxation Office does not deem these loans to be dividends.

Division 7A of the Income Tax Assessment Act 1936 (‘the Act’) requires such loans to be ‘arm’s length’. The rules are stringent and require a special type of loan agreement known as a Division 7A loan agreement.

The Act is aimed at preventing private companies from making tax-free distributions of profits to shareholders (or their associates) in the form of loans.  Unless the loan comes within specified exclusions in Division 7A it is treated as an assessable dividend and taxed as a dividend. The Division 7A loan agreement enables you to satisfy these requirements so that your loan is legitimate in the eyes of the ATO.

This bundle includes:

Division 7A Loan Agreement Template

Agreement from company to shareholders that satisfies requirements of a loan under Division 7A of the income Tax Assessment Act 1936.  Includes:

  • Definitions
  • Interpretation
  • Advances
  • Interest
  • Term
  • Repayment
  • Yearly repayments
  • Statutory minimum repayments
  • Payments affected by the Act
  • Early repayment
  • Guarantee

Agreement is Suitable for secured and unsecured loans.  Most of the variables are in a Schedule to the agreement for ease of drafting.

12 pages long.

Loan Calculator

A loan calculator that enables you to calculate the repayments and a repayment schedule for the loan. Simply enter the loan amount, interest rate, term, commencement date and our loan amortisation will calculate monthly repayment AND give you a schedule of all repayments over the life of the loan including the due dates!

Practice Guide

A concise explanation of the law with links to legislation and ATO rulings. Everything you need to know in a couple of pages you can print our or send to your accountant.

Company resolution

In order for your loan to be effective it must be accepted by the company. To help you do this we have included a precedent for the appropriate company resolution. Simply put in your company and loan particulars and you are ready to go.

  

 Includes GST

Now Including a Loan Calculator

A loan calculator that enables you to calculate the repayments and a repayment schedule for the loan. Simply enter the loan amount, interest rate, term, commencement date and our loan amortisation will calculate monthly repayment AND give you a schedule of all repayments over the life of the loan including the due dates!

 

 

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Division 7a Loan Agreement

Can I borrow money from my own company?

Yes, but be careful the ATO doesn’t tax you on it. Unwritten loans are taxed as dividends by the ATO. But there is a way to avoid this sneaky deeming provision. Read on.

Those of you fortunate enough to own your own company may have discovered they can be a handy source of funds to tide you over when money is tight. Being a director allows you to take money whenever you want to. Many people do this with the intention that they will pay it back. But will it be considered a loan by the ATO come tax time. The answer is most likely ‘no’.

Loans to Shareholders are covered by Division 7A of the Income Tax Assessment Act 1936. The loans need to at ‘arm’s length’. If not, the ATO deems them to be dividends, and taxes them accordingly – even if you pay them back! So how to ensure your borrowings are considered ‘arm’s length’ by the ATO.

Not surprisingly, the ATO has put out a complicated ruling, stipulating all its requirements. They are many and detailed. Fortunately, we have created a loan agreement that satisfies all the ATO requirements so that you can rest assured your borrowings will continue to be recognised as such and not ‘deemed’ to be taxable by the ATO.  We call it the Division 7A loan agreement.

 

This information is not nor represents legal advice by Precedents Online or its Authors.

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