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Division 7A loan repayments


Almost all minimum annual repayments under complying Div 7A loan agreements are made without transferring money. They are typically made by way of set-off against a dividend declared by the company, or purportedly made via a round-robin of payments. This article addresses the requirements to make a legally effective repayment by way of set-off. Where a repayment is not effective, the minimum annual repayment has not in fact been made, resulting in a deemed dividend. The article also considers common Div 7A circumstances where the particular structure does not naturally provide for making repayments by way of set-off, and the effectiveness of purported round-robin payment arrangements by journal entry. These are fundamental issues that practitioners
encounter when assisting their clients to comply with Div 7A. In addition, there are broader tax, corporate and commercial issues, and risks that arise, for both clients and practitioners. The article is written on the basis of an assumed level of Div 7A knowledge, and thus does not cover every relevant technical point.

Author profile

David Montani CTA
David is Nexia Australia’s National Tax Director, providing tax technical and strategic support to Nexia offices across Australia. Prior to commencing this role in 2019, David had 26 years of experience in taxation and business advisory, with the last 15 years in specialist taxation consulting, leading Nexia Perth's Tax Consulting Division. Particular areas of specialty include business restructures, property transactions, Capital Gains Tax, Division 7A and business sales. David's approach is to deliver solutions-based outcomes that assist clients in making important decisions concerning their businesses. - Current at 22 October 2020
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