As you may be aware, companies cannot provide interest free loans to associated persons. Likewise, directors cannot use company funds for private purpose unless those funds are declared as dividends or wages (including director fees).
If you have drawn money out of your company during the year that money must be returned to the company on or before 30 June (some entities may have until the company’s lodgement day for the year) to ensure that it is not taxed in your personal name.
In the event that you owe your company at 30 June, then you must enter into a Div 7A loan agreement between yourself and the company. Effectively this means that you must repay the loan back to the company with interest at the rate of 8.28% (proposed new rate) over the next 7 years. You should note that the interest will be taxable income for the company but you cannot claim a deduction for the interest in your own name.
For most people, it would be easier for the company to pay fully franked dividends (if applicable) rather than receive loan funds. Whilst this will result in individuals having higher taxable incomes, they will avoid the ongoing tax issues of repaying the loans.
If you find that you have drawn out excess monies from your company, you can redraw money from your personal bank loans and repay the money to your company on or before 30 June 2019.
If you are unsure as to your financial position in relation to your situation, please call us to discuss.
Other resources you may consider:
Managing Division 7A risks, and corrective action
