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 109E   AMALGAMATED LOAN FROM A PREVIOUS YEAR TREATED AS DIVIDEND IF MINIMUM REPAYMENT NOT MADE  

109E(1)   Amalgamated loan treated as dividend in first year in which payment is less than minimum yearly repayment.  

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 made an amalgamated loan to the entity in an earlier year of income; and

(b) the amalgamated loan is not repaid at the end of the current year; and

(c) the amount (if any) paid to the private company during the current year in relation to the amalgamated loan falls short of the minimum yearly repayment of the amalgamated loan worked out under subsection (5) for the current year; and

(d) section 109Q does not apply in relation to the current year.

Note:

The amalgamated loan does not give rise to a dividend for that year if the minimum yearly repayment is not made and the entity satisfies the Commissioner that treating the loan as a dividend would cause hardship. See section 109Q .

109E(2)   Amount of dividend.  

The amount of the dividend is taken to be the amount of the shortfall mentioned in paragraph (1)(c), 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.

109E(3)   What is an amalgamated loan?  

For the purposes of this Division, a private company is taken to make a loan (the amalgamated loan ) to a single entity during a year of income if the private company makes one or more loans ( constituent loans ) to the entity during the year, each of which:

(a) is not fully repaid before the lodgment day for the year; and

(b) would cause the company to be taken under section 109D to pay a dividend to the entity at the end of the year, apart from section 109N ; and

(c) has the same maximum term for the purposes of that section.

The amount of the amalgamated loan is the sum of the amounts of the constituent loans that have not been repaid before the lodgment day for the year of income in which the amalgamated loan is made.

109E(3A)   [ Effect of mortgage on constituent loan]  

Subsection (3B) applies if:

(a) a private company is taken to have made an amalgamated loan (the old amalgamated loan ) during a year of income (the original year of income ); and

(b) the maximum term of the old amalgamated loan under subsection 109N(3) was 7 years; and

(c) in a later year of income (the later year of income ):

(i) a constituent loan taken account of by the old amalgamated loan becomes secured by a mortgage over real property; and

(ii) the term of the constituent loan is extended; and

(d) as a result of the mortgage, the maximum term of the constituent loan under subsection 109N(3) is 25 years; and

(e) the term of the constituent loan after the extension (including the period before the extension during which the constituent loan was in existence) does not exceed 25 years.

109E(3B)   [ Treatment of constituent loan]  

For the purposes of this Division in relation to the later year of income and subsequent years of income:

(a) treat the constituent loan as a new amalgamated loan that takes account of that constituent loan; and

(b) treat the new amalgamated loan as having been made just before the start of the later year of income; and

(c) treat the amount of the new amalgamated loan just before the start of the later year of income as the amount of the constituent loan that had not been repaid at that time; and

(d) unless paragraph (e) applies - reduce the amount of the old amalgamated loan just before the start of the later year of income by the amount of the new amalgamated loan at that time; and

(e) if the constituent loan was the only constituent loan taken account of by the old amalgamated loan - disregard the old amalgamated loan.

109E(4)   Payments in relation to constituent loans treated as payments in relation to amalgamated loan.  

For the purposes of this Division, a payment to the private company in relation to a constituent loan in a year of income after the one in which the constituent loan was made is taken to be a payment in relation to the amalgamated loan that takes account of the constituent loan.

109E(5)   Minimum yearly repayment.  

The minimum yearly repayment of an amalgamated loan for a year of income is the amount worked out using the formula in subsection (6). However, the minimum yearly repayment of an amalgamated loan for a year of income is the amount worked out under the regulations, if they provide for working it out.

109E(6)   Formula for minimum yearly repayment.  

The formula for the minimum yearly repayment for a year of income is:

where:

current year's benchmark interest rate
is the benchmark interest rate for the year of income for which the minimum yearly repayment is being worked out.

remaining term
is the difference between:

(a) the number of years in the longest term of any of the constituent loans that the amalgamated loan takes account of; and

(b) the number of years between the end of the private company's year of income in which the loan was made and the end of the private company's year of income before the year of income for which the minimum yearly repayment is being worked out;

rounded up to the next higher whole number if the difference is not already a whole number.

Note:

Section 109R provides that certain payments relating to a loan are not to be taken into account for the purposes of working out the minimum yearly repayment.

109E(7)   Benchmark interest rate used to work out how much of a payment relating to amalgamated loan is a repayment.  

Work out the amount of an amalgamated loan repaid by the end of a year of income on the basis that interest is payable on the balance of the loan from time to time in a year of income at a rate equal to the benchmark interest rate for the year of income.