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What are the proposed changes to Division 7A?

The Australian Taxation Office (ATO) released a consultation paper concerning proposed amendments to the Division 7A integrity rules.

The proposed changes include simplifying the loan rules the current 7 year and 25 year loans will be replaced with one 10 year loan. This new loan would include:

1. Maximum length of 10 years;

2. The interest rate charges will be the Overdraft Indicator lending rate per the RBA;

3. Unlike loans entered now, there will be no requirement for a formal loan to be put in place. However, there must be evidence that the loan was entered into by the lodgement day of the company’s return, this would include:

- Details of the parties to the loan;

- Date of loan; evidence of execution; and the binding nature on the parties to the agreement; and

- The loan terms including:

  • The amount of the loan;
  • The date that the loan was drawn;
  • The requirement to repay the loan amount;
  • The term of the loan; and
  • Interest rate payable.

4. Like now the minimum interest payments will still consist of interest and principal, however:

- The interest component will be calculated on the opening balance of the loan each year;

- The principal repayments will be determined in a straight-line basis, i.e., a series of equal instalments.

- Interest will be calculated for the full financial year irrespective of any repayments being made (excluding year 1)

These changes are set to be implemented by 1 July 2019.

If you would like to discuss further please contact us:
McNamara and Co - Chartered Accountants, located minutes from the Melbourne CBD
Phone +61 3 9428 1062

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