News Detail
Last Chance for Private Company Loans to Shareholders
Wednesday, 4 June 2008 17:48
Time is running out for private companies to correct honest mistakes relating to outstanding private loans, payments, or forgiveness of loans to their shareholders. Otherwise, from July 1, these transactions will be treated and taxed as assessable income in the hands of the shareholders under Division 7A of the Tax Act.
This is a not-to-be-missed, one-off opportunity provided by the ATO to rectify documentation in relation to personal loans, non-compliant loans, payments or debt forgiveness by companies to their shareholders, if:
- the failure to comply was an honest mistake or inadvertent omission by the private company or the shareholder, or
- corrective action is taken by June 30, ensuring that the payment was converted into a compliant loan with a principal and interest payments, and
- shareholders lodge the required tax returns for the 2001/02 to 2006/07 tax years.
As from 1 July 2008, the ‘self-correction’ option allowed by the ATO will no longer be available. Thereafter taxpayers will need to apply to the Commissioner for the application of the discretion in order to prevent the provisions of Division 7A applying.
What will be required between now and June 30 will be:
an evaluation of the risks to Division 7A exposure (i.e. transactions between the private company and the shareholder or shareholder’s associate that may include loans, payments and debts forgiven);
ensuring that corrective action is taken, (i.e. having complying loan agreements in place and making a payment or payments of capital and interest, to produce a similar position to complying taxpayers; and
ensuring that interest paid to the private company in the 2007–08 income year is included in the company’s assessable income.
Call Espreon on 1300 139 001 today to discuss your Division 7A requirements.
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