The bemused reader can only wonder what marvels exist beyond the meaningless collaboration of symbols. It’s a government’s way of sparking interest in things that are, in reality, fairly mundane.
Mi6, Area 51 and Double-0-7 are great examples. They conjure images of deeply held national secrets, extraterrestrial technologies and sculpted men in dinner suits silently dispatching ultra-villains. All very snazzy stuff. Realistically, those types of institutions revolve around cubicle offices, stale drip coffee and endless data entry.
Division 7A of Income Tax Assessment Act 1936 is perhaps the Australian Government’s pièce de résistance. Interesting as it may sound, it’s the legislature’s way of restricting you from taking stuff out of your own company in a way that would allow you to shimmy past the tax man.
Broadly speaking, any time that a private company makes a payment, provides an asset, grants a loan or forgives a debt to a shareholder, the starting point is to say that the transaction is a Division 7A deemed dividend.
The effect of classifying the transaction as a dividend is that, instead of being a non-taxable gift or loan, the transaction becomes a taxable dividend. In essence, Division 7A stops your company giving you things, tax free.
There are however at least ten legislated exceptions to the general rule. Loans between a company and its shareholders can be excluded from the deemed dividends regime where the loans are documented, include a minimum interest rate and are repayable within certain timeframes.
Exceptions also exist where loans can be said to be made in the ordinary course of business and where loans are made between companies. The exceptions regime is complex and individual cases require specific analysis. Getting the documentation wrong can affect how much tax you pay.
Everingham Solomons has legal expertise in complex business matters. If you have a complex commercial problem, contact us because, Helping You is Our Business.
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