Taxation Determination TD 98/22




Examples: Example 1: 4. A private company makes an unsecured loan to a shareholder on 5/12/1997. The loan is made under a written agreement which specifies that the rate of interest payable for all future years of income must equal or exceed that required by paragraph 109N(1)(b) of the Act. The term of the loan is 7 years. For the year ended 30 June 1998, as all the requirements of section 109N are met, the loan is not treated as a dividend under Division 7A. Years after the year in which the loan is made 5. For a loan not to be treated as a dividend in years after the year in which it is made, it is necessary that the taxpayer makes a minimum yearly repayment in relation to the loan. The amount of the minimum yearly repayment is worked out using the formula in subsection 109E(6). | Example 2: 6. If the amount of a loan not repaid at 30 June 1998 is $100,000, the term of the loan is five years, the remaining term of the loan is also five years, the repayments made for the 1998-99 year of income were $26,000 and the current year benchmark interest rate is 6.7%, the minimum yearly repayment for the 1998-99 year of income is calculated as follows: 7. Since repayments made for the 1998-99 year of income 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). Commissioner of Taxation 28 October 1998 Not previously issued in draft form



This Determination applies to years commencing both before and after its date of issue. However, it does not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of the Determination (see paragraphs 21 and 22 of Taxation Ruling TR 92/20). | 1. The benchmark interest rate is used to determine: | Year in which loan is made: 2. For a loan not to be treated as a dividend under Division 7A in the year in which it is made, it is necessary that the loan meet the requirements of subsection 109N(1). These requirements are: | 3. If the requirements of section 109N are satisfied, there is no requirement, under Division 7A of Part III, to pay interest or make repayments in the year a loan is made. | Note: sections 109K, 109L and 109M also specify circumstances when loans are not treated as dividends. The operation of those sections is not covered in this Taxation Determination.


Related rulings: TD 98/21
Legislative references: ITAA36 109E ITAA36 109E(1) ITAA36 109E(6) ITAA36 109K ITAA36 109L ITAA36 109M ITAA36 109N ITAA36 109N(1) ITAA36 109N(1)(b) ITAA36 109N(2) ITAA36 109N(3)
Subject references: benchmark interest rate deemed dividends private company distributions