3.

3 Deemed Dividends - Division 7A

Three types of Div7A:
1) Amounts paid by co to shareholder or their associates s109C
2) Amounts lent by co to shareholder or their associates s109D-E
3) Amounts of debt forgiven that were owed by shareholder/
shareholder associates to the co s109F

Exceptions to Div7A
1) Loans that are repaid by the earlier of actual
lodgement or due date for lodgement of co tax return
2) Loans made before 4/12/97, but if terms change
post-4/12/97 Div7A applies s109D(5)
3) Forgiven debts that have previously applied s108
to treat loan as deemed dividend

*amts dist after 4/12/97 treated as dividend to the extent there is

distributable surplus

Deemed Dividends
Is the distribution by a private co?

Div 7A doesnt
apply

No

Dividend definition s6(1):

1) Any dist from co to shareholder
2) Any amt credited by co to shareholder
Does not incl:
a) Dist. from share capital acct
b) Certain dist relating to redemption/
cancellation of redeemable pref shares

Yes
Is the distribution after 4/12/1997?

May be caught under s108

ITAA 1936

No

Yes

Other info
- Property pmts incl arms length property
value s109C

Is the distribution one of the following?

Has one of these transactions
occurred through an interposed entity?

No

Yes

No

Anti avoidance provisions apply (s109T/U)

This treats the private company, not the interposed entities as
having paid or lent the amount to the shareholder.
s109X states the exclusions in s109L/M/N do not apply
*Div7A does not apply to pmts btwn entities s109K

Yes
Is the transaction excluded?

Rules do not
apply

Yes

1) the loan agreement must be in writing

2) Rate of interest payable on the loan for years of
income after the year in which the loan was made
must equal or exceed the benchmark interest rate
(7.55% - 06/07)
3) Term of the loan must not exceed the maximum
term of the loan of:
-7 yrs, or
-for a registered mortgage over real property of not
more than 91% of the value of the property, 25 yrs

No
Is the amount greater than the cos
distributable surplus?
Dist surplus calculated as:
Assets
Less: present legal obligations
Less: specified provisions
Equals Net assets
Less: non-commercial loans
Less: paid up share value
Less: repayment of non-commerical loans
Equals Distributable surplus
*Calc according to book values s109Y(2)

Exclusions s109N
s109N : Minimum interest rate and maximum term
criteria

Yes

Partial dividend s109Y

Only the part of the total equal to the
distributable surplus is treated as
dividends
No
Full amount
treated as
dividend

Div 7A Consequences
1) Dividends incl in AI of shareholder as
an unfranked dividend (s202-45)
2) Result in franking debit to cos
franking acct according to cos
benchmark franking %
3) Not subject to withholding tax if paid to
non-resident s109ZA
4) Not treated as fringe benefit s109ZB

Amalgamated loans
s109P s109Q
-meet minimum
annual repayment

FBT
1) Loan/debts forgiven
Div 7A
priority (as defined in s136(1) FBTA)
2) Pmts to SH in capacity of employee
FBT priority
3) Div7A deemed dividend is not
fringe benefit s1l36(1)(r)
4) If Div7A does not apply, need to
look at FBT consequences

Ken Choi 2007