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When Do You Need A Division 7A Loan Agreement

In addition, a payment from another company to the private company is taken into account on behalf of the shareholder or its associated company, regardless of the intention to obtain another loan if the amount of payment is made: for example, a loan to an investment unit in which the family and a number of unrelated persons hold the shares may be subject to Division 7A. We have come across many cases where independent parties have created a Unit Trust to carry out a real estate acquisition or real estate development. As a general rule, the financing of the trust is provided by loans from businesses controlled by each family. This often results in a Division 7A loan to the investment fund, with dividends paid to the investment fund when loans are not identified and treated appropriately. As a result, unitholders are taxed on their share of dividends, even if the loan does not come from a company they own or control. Sally and XYZ Pty Ltd agree to convert the payment into a loan before the termination date of the private company. The provisions of Division 7A regarding loans are now more applicable. If you have a Division 7A credit contract and borrow money from a Pty Ltd company under the agreement, avoid the loans being classified as dividends. This means that the loans do not have the adverse tax consequences of Division 7A of the Income Tax Act 1936 (Cth). Example 6 – The amount of the merged loan that will not be repaid until the end of the first year of income (2014) if a customer has accumulated several years of Div 7A loans, they all need a minimum repayment per year. The sum of these annual repayments, paid in compensation for a dividend, can quite push the client into the higher tax class. Therefore, if the client is still in the higher tax class, the alternative approach may still offer the possibility of savings described above. A loan made as part of an agreement written before the date of liability of the private company and which meets the minimum interest rate and the criteria of maximum duration is not considered a dividend during the year of loan return.

Lucio • 21 diciembre, 2020


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