Division 7A: Private Company Payments, Loans and Benefits
Model Answers
Question 1 — Shareholder payment
Section 109C is the starting point because the private company has paid a private expense for a shareholder. The accounting description does not prevent Division 7A. Check whether the shareholder is within the statutory relationship, whether an exclusion applies, and the company’s distributable surplus.
Question 2 — Loan before lodgment
The remaining $130,000 must be analysed under s 109D. Determine whether it was fully repaid before lodgment day or placed on s 109N complying terms by the required time. For a complying loan, confirm written agreement, benchmark interest, permitted term and security (if a longer secured term is claimed). Also test anti-circular-repayment rules and distributable surplus.
Question 3 — Complying term
Section 109N imposes substantive terms: minimum interest based on the benchmark rate, maximum term and written agreement by the required time. A signed document that charges too little interest, has an impermissible term or is not actually administered does not automatically solve the Division 7A problem.
Question 4 — Minimum yearly repayment
Section 109E requires the shortfall in the minimum yearly repayment to be tested as a deemed dividend amount, subject to Division 7A’s wider limitations and distributable surplus.
Question 5 — Debt forgiveness
Section 109F is the core provision for debt forgiveness. After establishing that a debt was legally forgiven and no exclusion applies, the resulting deemed dividend remains subject to the Division 7A framework including the distributable-surplus cap.
Question 6 — Distributable surplus
Section 109Y generally caps the aggregate deemed dividend by distributable surplus. Even if preliminary benefits total $200,000, the taxable Division 7A amount may be limited to $70,000, subject to the detailed statutory calculation and any other relevant adjustments.