Terry Pty Ltd lends $US 20,000 to Ann, a shareholder of Terry Pty Ltd. The money is lent to Ann on the basis that she will repay it if she can. The $20,000 is a loan from Terry Pty Ltd to Ann because it is a cash advance, and Division 7A may apply. Sally and XYZ Pty Ltd agree to convert the payment into a loan prior to the private company`s loan date. The loan provisions of Division 7A now apply. A private company can pay a dividend to a company at the end of the company`s income year if it lends an amount to a company during the year: in the 2014 income year, a private company granted loans of $50,000 and $25,000 to a shareholder. A payment or benefit that may be subject to Division 7A is not treated as a dividend if it is repaid or converted into a Division 7A loan up to the date of the business for the income year in which the payment or benefit is made. The loan amount remaining at the end of the previous income year (d.b of the year ending June 30, 2015) is $50,430 (see conclusion of Example 7). There is no prescribed form for written agreement.

However, the agreement should at least identify the parties, set out the essential terms of the loan (i.e. the amount and duration of the loan, the repayment obligation and the interest rate to be paid) and be signed and dated by the parties. Alicia obtains a loan of 10,000 $US from Cleary Pty Ltd. Alicia has until the day of repayment of the loan. Two weeks before the day of the lodgment, Alicia receives an additional $10,000 from Cleary Pty Ltd. It then repays the initial loan of $US 10,000 one week before the day of the lodgment. Repayment of the original $10,000 loan is not a repayment within the meaning of Sections 109D. This is due to the fact that Alicia lent a similar amount to Cleary Pty Ltd and, in this case, a reasonable person would conclude that the loan was obtained to repay the initial $10,000. If, on or after December 16, 2009, a beneficiary private enterprise provides the trustee of a trust with financial arrangements or, on or after December 16, 2009, a transaction with the agent of a trust, a loan is made to the trustee of the trust for the purposes of Division 7A. For subsequent income years, it is important to know how much of the repayment made in the income year comes from interest and how much is used to reduce the principal to calculate the loan amount that was not repaid until the end of the previous income year. Each entry in a shareholder`s or beneficiary`s loan account must be analyzed to determine the type of transaction it represents (i.e.b if it is a payment, loan or debt forgiveness to which Division 7A applies). .

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