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Division 7A Loan Agreement

Division 7A Loan Agreement

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4.8 (5)
Under 10 minutes
Under 10 minutes
Last updated December 2018
Last updated February 19, 2020
Suitable for all Australian states and territories
Suitable for all Australian states and territories

A Division 7A Loan Agreement is a document that formalises loans between a private company and an individual. Customisable and ready for use in under 10 minutes.

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Document Overview

A Division 7A Loan Agreement is a document that formalises loans between a private company and an individual. If a company were to loan money to a shareholder or associate without a Division 7A agreement, the amount may be counted towards the individual’s income for that tax year. This agreement is particularly relevant when a company's loans are audited as loans that are not “formalised” with a Division 7A Loan agreement may be considered a dividend.  

Complying under Division 7A

In order for a loan to be compliant and to avoid being deemed a taxable dividend, the ATO indicates it must satisfy the following conditions:

  • A written agreement such as this one must be established before the company’s income tax return deadline.

  • The annual interest rate of the loan must be at least equal to the Division 7A benchmark rate.

  • For loans that are secured by property, as per the ATO’s guidelines, the term should not exceed 25 years 

  • For all other loans the terms should be no longer than 7 years.

  • The minimum yearly repayment must be met.

Use this Division 7A Loan Agreement If:

  • You’re a private company and;

  • You want to provide a loan to a shareholder or associate 

What does this Division 7A Loan Agreement Cover?

  • Lender and borrower details

  • Acknowledge of loan agreement

  • Interest rate

  • Loan term

  • Repayment terms

  • Definitions

Further Information:


 


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