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2007-01-10
Private Company Loans
Private company loans to shareholders or anyone linked with or related to a shareholder can be problematic, with nasty consequences for the unsuspecting.
A deemed dividend arises if a loan like this is not.
- fully repaid in the same tax year in which it arises; or
- repaid on commercial terms where the loan is for more than a tax year.
If this happens…
- your company's franking account is debited; and
- the deemed dividend is taxable in the hands of the shareholder or associate without access to a franking credit to offset the tax paid by your company.
Ouch! This effectively amounts to a double penalty overall.
Late last year, the Government announced that it would remove the automatic debiting of a company's franking account when a deemed dividend arises in these circumstances - this at least removes the element of double penalty.
The Commissioner of Taxation will also be provided with a discretion to disregard a deemed dividend.
He will be able to do this where there is evidence that you have attempted to comply with these provisions, have made an honest mistake and efforts have been made to rectify it.
The best solution is to obviously not fall foul of these rules in the first place. To find how to prevent this situation occurring please call us on (02) 9555 1309.
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