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Tax Facts - Loans to Shareholders

Advances (or loans), including the forgiving of debts, made by a private company to a shareholder (or an associate of a shareholder) are automatically deemed to be dividends, unless they come within certain specified exclusions. The deemed dividend can only apply to the unpaid present entitlement to which the private company is entitled.

If the advances are converted to a loan before the due date of the company's income tax return, the advances will not be treated as a dividend. However, this loan must be written and have a maximum term and minimum interest rate.

There is also a requirement that the shareholder make minimum repayments on the loan. If the minimum repayments are not made, a deemed dividend will arise in relation to the shortfall.

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Forbes
36 Templar Street
PO BOX 837, Forbes NSW 2871
(02) 6852 1855, f (02) 6852 4198     
info@bwraccountants.com.au
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136 Clarinda Street  
PO BOX 94, Parkes NSW 2870
(02) 6862 1444, f (02) 6862 4825     
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