Income Tax Assessment Act 1936

PART III - LIABILITY TO TAXATION  

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

Subdivision D - Payments and loans that are not treated as dividends  

SECTION 109N   LOANS MEETING CRITERIA FOR MINIMUM INTEREST RATE AND MAXIMUM TERM NOT TREATED AS DIVIDENDS  

109N(1)   Criteria.  

A private company that makes a loan to an entity in one of the private company's years of income is not taken under section 109D to pay a dividend at the end of the year of income because of the loan if, before the lodgment day for the year of income:

(a) the agreement that the loan was made under is in writing; and

(b) the rate of interest payable on the loan for years of income after the year in which the loan is made equals or exceeds the benchmark interest rate for the year; and

(c) the term of the loan does not exceed the term (the maximum term ) for that kind of loan worked out under subsection (3).

109N(2)   Benchmark interest rate.  

The benchmark interest rate for the year of income is the Indicator Lending Rates - Bank variable housing loans interest rate last published by the Reserve Bank of Australia before the start of the year of income. However, the benchmark interest rate is the rate worked out under the regulations, if they provide for working it out.

109N(3)   Maximum term.  

The maximum term is:

(a) 25 years for a loan if:

(i) 100% of the value of the loan is secured by a mortgage over real property that has been registered in accordance with a law of a State or Territory; and

(ii) when the loan is first made, the market value of that real property (less the amounts of any other liabilities secured over that property in priority to the loan) is at least 110% of the amount of the loan; and

(b) 7 years for any other loan.

However, the maximum term for a loan is the period worked out under the regulations, if they provide for working out the maximum term for that kind of loan.

109N(3A)   [ Refinancing of loan to maximum of 25 years]  

Reduce the maximum term under paragraph (3)(a) for a loan (the new loan ) in accordance with subsection (3B) if:

(a) the new loan results from the refinancing of another loan (the old loan ); and

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

(c) the maximum term of the new loan under subsection (3) is 25 years (disregarding this subsection).

109N(3B)   [ Amount of reduction]  

The amount of the reduction is equal to the length of the period:

(a) starting when the old loan was made; and

(b) ending when the old loan was refinanced.

109N(3C)   [ Refinancing of loan to maximum of 7 years]  

Reduce the maximum term under paragraph (3)(b) for a loan (the new loan ) in accordance with subsection (3D) if:

(a) the new loan results from the refinancing of another loan (the old loan ); and

(b) the maximum term of the old loan under subsection (3) was 25 years; and

(c) the maximum term of the new loan under subsection (3) is 7 years (disregarding this subsection); and

(d) the length of the period:

(i) starting when the old loan was made; and

(ii) ending when the old loan was refinanced;

exceeds 18 years.

109N(3D)   [ Amount of reduction]  

The amount of the reduction is the excess mentioned in paragraph (3C)(d).

109N(4)   Regulations may adopt rate as published from time to time.  

Regulations made for the purposes of subsection (2) may apply, adopt or incorporate a rate published in an instrument after they are made or take effect, or a rate contained in an instrument from time to time, despite any other Act.