About the Div 7A Loan (including 2008 Amnesty)

Division 7A (with the 2008 Amnesty)

So, you just want to borrow a few dollars from your company. Division 7A deems that a “loan” from your company to yourself is assessable income - this is unless the loan is placed on strict commercial terms under Division 7A.

It is easy to forget about making a Div 7A loan and the compulsory payments. We are all only human after all.

Between the years 2001 to 2007 many clients opted to go “silent” on Div 7A mistakes. They hope the ATO won’t audit them. Running this gauntlet is illegal and not a good idea - especially with the amnesty still open for a few more days until 30 June 2008. If you as a lawyer, adviser or accountant are involved with the hiding of these Div 7A breaches from the ATO then you risk your ticket to practice. The client will dob you in when the auditor applies pressure on them.

An opening to the tax law, which closes on 30 June 2008, gives the ATO discretion to disregard breaches of Division 7A where an honest mistake or inadvertent omission occurred. For example, your client may have borrowed the money from their company. They forgot to do a Div 7A Loan Agreement. Therefore, the repayments and interest were not paid the following year. They fall fowl of Div 7A for 2 reason: no Loan Agreement and no appropriate repayments. Both end up as fatal to Div 7A.

Before the amnesty, the undocumented loan was deemed an unfranked dividend. When disclosed to the ATO, at the next tax return, the shareholder paid income tax on the whole amount of the loan. Together with the loss of the imputation credits and penalties there is an effective tax rate of over 100%.

To get the amnesty you need to:

1. show the Div 7A breach was an honest mistake

2. lodge any outstanding tax returns for 2001-02 to 2006-07

3. build and sign this Div 7A Amnesty Loan Agreement before 30 June 2008

4. make the payments to the company before 30 June 2008 - but only the outstanding minimum yearly payment plus the outstanding benchmark interest

Our Div 7A Amnesty Loan Agreement is designed for all non-complying company loans made 1 July 2001 to 30 June 2007. Our Div 7A Amnesty Loan Agreement fully complies with PS LA 2007/20.

BACKGROUND INFORMATION ON DIVISION 7A

When your company loans or gives you money you need a "Division 7A loan agreement". If not, the loan can end up as a "bad dividend". This loan agreement covers all loans made by the company to you.

By building this document you will learn answers to the following burning questions:

1. What is Division 7A of the Income Tax Assessment Act?

2. Why did the government introduce Div 7A?

3. Why do I need a Div 7A Loan Agreement?

4. What if I present the document to the Office of State Revenue too late?

5. When do I date the Loan Agreement?

6. Is a Division 7A only useful for a private company - Pty Ltd?

7. What is the Benchmark interest rate set by the Australian Tax Office?

8. How is a LawCentral Div 7A Loan Agreement able to automatically without fail update the Benchmark interest rate every financial year?