Jun 2019 2 Minutes

Post-Election Division 7A Landscape

As published in our Summer Newsletter, the Government released a consultation paper in October 2018 on the proposed amendments to Division 7A of the Income Tax Assessment Act 1936, which deals with loans from private companies.

Most of the changes were proposed to be implemented from 1 July 2019. In the 2018/19 Federal Budget released in April 2019, the Government announced that these changes will be delayed to 1 July 2020.

With the re-election of the Coalition into Government, it will be interesting to see whether any of the previous changes announced will be further modified. The key changes, as they currently stand, are as follows:

  1. Private companies making loans on or after 1 July 2020 will need to have a maximum term of 10 years.
  2. Complying 25 year loans in existence as at 30 June 2021 will need to be converted to 10 year loans.
  3. Pre 4 December 1997 loans in existence as at 1 July 2021 will become subject to Division 7A.
  4. Unpaid present entitlements due to a private company that arose prior to 16 December 2009 may need to be placed on complying loan agreements effective 1 July 2020.
  5. The interest rate applicable to Division 7A loans will be the Small Business; Variable, Other Overdraft Indicator lending rate from 1 July 2020. This rate is currently at 8.32% compared to the Division 7A benchmark rate currently at 5.2%.

We recommend undertaking a review of the existing Division 7A arrangements in place to commence planning for potential consequences arising from the new measures.

Please contact Iggy Moro if you would like to discuss how these proposed changes may impact your company and whether there are opportunities to limit its impact.