Director Loans from the company
A company can make a loan to a shareholder or director. However, to avoid tax consequences, before the company tax return is due or lodged (whichever comes first), the loan must either:
– be repaid, or
– comply with all of the following
– be a written agreement, signed and dated
– have an interest rate for each year that at least equals the benchmark interest rate for that particular year, and
– not exceed the maximum term of seven years (25 years in certain circumstances when the loan is secured by a registered mortgage over real property).
A loan that complies with all of these requirements is known as a ‘complying loan’:
– The company must report any interest earned from the loan in their company tax return.
– the shareholder:
– must make a minimum yearly repayment each year (use the Division 7A calculator to determine this amount)
– cannot borrow further money from the company to make the minimum yearly repayment
– can make payments on the loan using a dividend from the company, as long as you report the dividend in your income tax return.
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