Taxation Determination

TD 2001/1

Income tax: what is the benchmark interest rate applicable for the year of income commencing on 1 July 2000 for the purposes of Division 7A of Part III of the Income Tax Assessment Act 1936 ('the Act') and how is it used?

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FOI status:

may be releasedFOI number: I 1022030

1. For the income year beginning on 1 July 2000, the benchmark interest rate for the purposes of sections 109N and 109E of the Act is 7.80% per annum.

2. This benchmark interest rate is relevant to loans made or deemed to have been made after 3 December 1997 and before 1 July 2000. It is used to:

•

determine if a loan made in the 1999-2000 income year is taken to be a dividend (paragraph 109N(1)(b) and subsection 109D(1)); and

•

calculate the amount of the minimum yearly repayment for the 2000-2001 income year on an amalgamated loan taken to have been made prior to 1 July 2000 (subsection 109E(5)).

3. This determination only applies where a private company which made the loan, or which is taken to have made the amalgamated loan, has an income year which commenced on 1 July 2000.

4. In the case of private companies with substituted accounting periods, the applicable benchmark interest rate will be available on the ATOassist website (www.ato.gov.au).

Example

5. A private company makes an unsecured loan to a shareholder on 1 July 1999. The loan is made under a written agreement which specifies that the rate of interest payable for all future years must equal or exceed that required by paragraph 109N(1)(b) of the Act. The term of the loan is 5 years. For the year ended 30 June 2000, as all the requirements of section 109N are met, the loan is not treated as a dividend under Division 7A.

If the amount of the loan not repaid at 30 June 2000 is $100,000, the minimum yearly repayment required for the 2000-2001 year of income is calculated as follows:

((Amount of the loan not repaid by the end of the previous year of income * Current year's benchmark interest)/(1-((1/(1+Current year's benchmark interest))^Remaining term)))
((100,000 * 0.078) / (1-((1 / (1 + 0.078))^5)))
= $24,913.76


If repayments made in the 2000-2001 year of income equal or exceed the minimum yearly repayment, the amount of the loan not repaid at the end of the year of income is not taken to be a dividend for the purposes of subsection 109E(1).

Commissioner of Taxation
10 January 2001

Not previously issued in draft form.

References

ATO references:
NO 98/10780-1

Related Rulings/Determinations:

TD 1998/22
TD 1999/39

Subject References:
deemed dividends
benchmark interest rate
private company distributions

Legislative References:
ITAA 1936 Part III Division 7A
ITAA 1936 109E
ITAA 1936 109N