Company Loans – Why Timing and Evidence Matter

STAFFORD, Australia - Oct. 14, 2025 - PRLog -- Documentation and evidence are important when it comes to tax planning. In this article, let's focus on loans issued by private companies to shareholders.

If a private company makes a loan to a shareholder in a given year, that loan must be repaid in full or placed under a complying Division 7A loan agreement by the earlier of the due date or lodgement date of the company's tax return for the year of the loan. If not, a deemed unfranked dividend can be triggered for tax purposes.

If a complying loan agreement is put in place, then minimum annual repayments normally need to be made to avoid deemed dividends being recognised for tax purposes

A common way to deal with loan repayments is by using a set-off arrangement involving dividends that have been declared by the company. However, in order for the set-off arrangement to be valid there are a number of steps that need to be followed before the relevant deadline. The ATO will typically want to see evidence which proves:

*When the dividend was declared; and

*When the parties agreed to set-off the dividend against the loan balance.
If there isn't sufficient evidence to prove that these steps were taken by the relevant deadline then you might find that there is a taxable unfranked deemed dividend that needs to be recognised by the borrower in their tax return.

To learn more about tax compliance, speak with our experienced accountants in Stafford, Queensland - https://mcfillin.com.au/.