If a private company attempts to make a tax-free distribution or other benefits (e.g. cash payment, a gift, a loan or writing off a debt) to a shareholder or an associate of a shareholder, the Australian Tax Office (ATO) can treat that distribution an assessable dividend and generally unfranked.

Division 7A is part of the Income Tax Assessment Act and is intended to prevent profits or assets being given tax free to a shareholder or an associate of a shareholder.

Division 7A does not apply if a shareholder or an associate of a shareholder;

  • Receives a payment as normal dividend or director’s fees
  • Converts any dividends or loans into a Division 7A complying loan, or
  • Repays any loans by the company’s lodgement day for the income year in which the payment or benefit occurs

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