Income Tax Assessment Act 1936

PART III - LIABILITY TO TAXATION  

Division 7A - Distributions to entities connected with a private company  

Subdivision B - Private company payments, loans and debt forgiveness are treated as dividends  

SECTION 109D   LOANS TREATED AS DIVIDENDS  

109D(1)   Loans treated as dividends in year of making.  

A private company is taken to pay a dividend to an entity at the end of one of the private company ' s years of income (the current year ) if:

(a) the private company makes a loan to the entity during the current year; and

(b) the loan is not fully repaid before the lodgment day for the current year; and

(c) Subdivision D does not prevent the private company from being taken to pay a dividend because of the loan at the end of the current year; and

(d) either:

(i) the entity is a shareholder in the private company, or an associate of such a shareholder, when the loan is made; or

(ii) a reasonable person would conclude (having regard to all the circumstances) that the loan is made because the entity has been such a shareholder or associate at some time.

Note 1:

Some repayments cannot be counted for the purpose of this subsection. See section 109R .

Note 2:

A private company is treated as making a loan to a shareholder or shareholder ' s associate if an interposed entity makes a loan to the shareholder or associate. See Subdivision E.

109D(1AA)   Amount of dividend.  

The amount of the dividend taken under subsection (1) to have been paid is the amount of the loan that has not been repaid before the lodgment day for the current year, subject to section 109Y .

Note:

Section 109Y limits the total amount of dividends taken to have been paid by a private company under this Division to the company's distributable surplus.

109D(1A)   Loans treated as dividends in year following that of making.  

A private company is taken to pay a dividend to an entity at the end of the private company ' s year of income (the current year ) if:

(a) the private company made a loan to the entity during the previous year of income; and

(b) it made the loan in the course of a winding-up of the private company by a liquidator; and

(c) the loan is not fully repaid by the end of the current year; and

(d) either:

(i) the entity is a shareholder in the private company, or an associate of such a shareholder, when the loan is made; or

(ii) a reasonable person would conclude (having regard to all the circumstances) that the loan is made because the entity has been such a shareholder or associate at some time.

Subdivision D (other than section 109R ) does not apply to loans covered by this subsection.

109D(2)   Amount of dividend.  

The amount of the dividend taken under subsection (1A) to have been paid is the amount of the loan that has not been repaid at the end of the current year, subject to section 109Y .

Note:

Section 109Y limits the total amount of dividends taken to have been paid by a private company under this Division to the company's distributable surplus.

109D(3)   What is a loan?  

In this Division, loan includes:

(a) an advance of money; and

(b) a provision of credit or any other form of financial accommodation; and

(c) a payment of an amount for, on account of, on behalf of or at the request of, an entity, if there is an express or implied obligation to repay the amount; and

(d) a transaction (whatever its terms or form) which in substance effects a loan of money.

109D(4)   In which year of income is a loan made?  

For the purposes of this Division, a loan is made to an entity at the time the amount of the loan is paid to the entity by way of loan or anything described in subsection (3) is done in relation to the entity.

109D(4A)   Payment converted to loan before lodgment day.  

If:

(a) a private company makes a payment to an entity at a time in a year of income; and

(b) the payment is converted to a loan before the end of the private company ' s lodgment day for the year of income;

for the purposes of this Division, treat the events mentioned in paragraphs (a) and (b) as the private company making a loan to the entity at the time mentioned in paragraph (a).

109D(5)   Loans made before 4 December 1997.  

If the terms of a loan made before 4 December 1997 are varied on or after that day by extending the term of the loan or increasing its amount, this Division applies to the loan as if it were made on the new terms when the variation occurred.

109D(6)   When is the lodgment day?  

In this Division, the lodgment day for a private company ' s year of income is the earlier of:

(a) the due date for lodgment of the private company ' s return of income for the year of income; and

(b) the date of lodgment of the private company ' s return of income for the year of income.

Note:

For the lodgment day for a private company that is a non-resident, see section 109BC .