CALL US: (07) 3367 0999 | EMAIL US:

Division 7a in detail

Business owners sometimes borrow money from their own company for a variety of personal and financial reasons. However, there can be an issue with tax law compliance if the proper steps are not carried out in treating the transaction correctly.

Division 7a is an integrity measure of tax legislation that comes into effect when there is a loan by a company to the business’ owners and associates, i.e. the shareholders of the company. Associates are broadly defined and can include family members and other related entities.

Specifically, this tax law covers any monetary benefits including:

-payments made to a shareholder (or associate) by a private company, including transfers or uses of property for less than market value

-loans made without specific loan agreements

-debt forgiveness

These transactions may come under the Division 7a provisions and as such are treated as assessable unfranked dividends to the shareholder or associate, and are taxed accordingly.

An assessable unfranked dividend means that there are no franking credits available to the recipient, so the franking tax offset will not apply and the recipient will have to pay tax on the dividends at the usual marginal rate.

However, there a few instances in which Division 7a will not apply:

-if the payment is made to a shareholder or associate who is also an employee of the company, than the dividend may be treated as a fringe benefit instead.

-to payments of genuine debts

-if the loan is entered into formally with a written agreement outlining minimum interest rates and maximum term criteria. However, minimum yearly re- payments of the loan are required in order to avoid the amount’s being treated as dividends arising in later years.

-payments or loans excluded by virtue of other tax provisions

Business
advice

taxation
planning

compliance
services

News

Tax on super death benefits for dependants vs non-dependants

July 9, 2020

A super death benefit is the super paid after a person’s death, usually to a nominated beneficiary. These benefits are subject to different tax treatments, depending on whether the beneficiaries are dependant or non-dependant.

Superannuation death benefits will generally be received tax-free by tax dependants, who are considered to be:

Dependants will not have to pay tax on the tax-free component of their super in the event that they:

However, they will be taxed at their marginal rate if they receive a capped benefit income stream and:

Not all super death benefits are subject to tax; for non-dependants, there is a taxable portion. This component is largely made up of after-tax super contributions that the deceased member has made.

Super death benefit payments are subject to tax when:

Non-dependants must calculate how much money in the super account is a:

The amount of tax non-dependants pay will be based on their marginal tax rate, however, this amount may be reduced by tax offsets. For the taxed element of the taxable component, the effective tax rate is your marginal tax rate of 17% (whichever is lower). For the untaxed element of the taxable component, the effective tax rate is 32% or your marginal tax rate (whichever is lower).