Private ruling: Company dealings with shareholder
Date of advice: 11 November 2022
Published: 9 January 2023
Ruling period: Year ended 30 June 20YY | Year ended 30 June 20YY | Year ended 30 June 20YY | Year ending 30 June 20YY
Date scheme commenced: 1 July 20YY

Ruling: Q1: Will a loan made by the company to a shareholder that was not repaid or put on a complying loan agreement before lodgment day in the year of making be considered a deemed dividend under Division 7A of the Income Tax Assessment Act 1936 (ITAA 1936) to the shareholder? | A1: Yes. Under section 109D of the ITAA 1936 a loan is treated as a dividend in the year of making where a private company makes a loan to a shareholder and the loan is not fully repaid or placed under a section 109N complying loan agreement before the lodgment day. The deemed dividend is assessable to the shareholder. | Q2: Will an unfranked dividend declared in a later year by the company to offset shareholder loan amounts previously taken to be deemed dividends under Division 7A of the ITAA 1936 be assessable to the shareholder? | A2: No. Under section 109ZC of the ITAA 1936 where a private company declares a later dividend and the amount is applied to repay part or all of a loan in relation to which a dividend was previously taken to have been paid, the amount of the later dividend is taken not to be a dividend. The amount that is taken not to be a dividend is not assessable income and not exempt income. | Q3: Will an unfranked dividend declared by the company in the 20YY income year be assessable to the shareholder? | A3: Yes. Under section 44 of the ITAA 1936 the assessable income of a shareholder includes dividends paid by the company out of profits derived from any source.

Relevant facts and circumstances: You are an Australian private company. Prior to DD MM 20YY, you had X shareholders. Following DD MM 20YY, you had X shareholder. You made loans to the shareholders in the 20YY and 20YY income years. The loans were not repaid before the lodgment day of the year of making. The loans were not placed onto complying loan agreements in accordance with section 109N of the ITAA 1936 before the lodgment day of the year of making. Under a family court order, you were to pay an unfranked dividend in the 20YY income year to offset one of the shareholder loan amounts outstanding. A separate payment was made to one of the shareholders on DD MM 20YY. You have declared an unfranked dividend for the 20YY income year in respect of the payment to the shareholder.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 44 | Income Tax Assessment Act 1936 section 109D | Income Tax Assessment Act 1936 section 109N | Income Tax Assessment Act 1936 section 109ZC