Taxation Determination

TD 2004/28

Income tax: what is the benchmark interest rate applicable for the year of income that commenced on 1 July 2004 for the purposes of Division 7A of Part III of the Income Tax Assessment Act 1936 and how is it used?

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FOI status:

may be released

1. For the income year that commenced on 1 July 2004, the benchmark interest rate for the purposes of sections 109N and 109E of the Income Tax Assessment Act 1936 (ITAA 1936) is 7.05% 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 2004. It is used to:

•

determine if a loan made in the 2003-04 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 2004-05 income year on an amalgamated loan taken to have been made prior to 1 July 2004 (subsection 109E(5)).

3. This Determination only applies where a private company, which either made the loan or is taken to have made the amalgamated loan, has an income year that commenced on 1 July 2004. (Taxation Determination TD 2001/18 explains how to find the benchmark interest rate for private companies with substituted accounting periods.)

Example

4. A private company makes an unsecured loan to a shareholder on 1 July 2003. 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 ITAA 1936. The term of the loan is 5 years. For the year ended 30 June 2004, 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 2004 is $100,000, the minimum yearly repayment required for the 2004-2005 year of income is calculated as follows:

5. If repayments made in the 2004-2005 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).

Date of effect

6. This Determination applies to the income year commencing on 1 July 2004.

Commissioner of Taxation
7 July 2004

Not previously issued in draft form.

References

ATO references:
NO 2004/6083

Related Rulings/Determinations:

TR 92/1
TR 92/20
TR 97/16
TD 98/22
TD 2001/18

Legislative References:
TAA 1953 Pt IVAAA
ITAA 1936 Pt III Div 7A
ITAA 1936 109D(1)
ITAA 1936 109E
ITAA 1936 109E(1)
ITAA 1936 109E(5)
ITAA 1936 109N
ITAA 1936 109N(1)(b)