Borrowing interest must be included in the lender`s income for the year. In order to establish the first annual minimum repayment, the amount of the merged loan not repaid at the end of the 2014 income year is $55,000 (loans less repaid before the date of return for fiscal 2014) and the benchmark interest rate for the year ended June 30, 2015 of 5.95%. In this example, the same facts as example 6 are used, except on May 30, 2015, the shareholder paid an additional $8,000 to the private company, or a payment of $4,000 for each loan. No further refunds were made during the 2015 production year. The taxpayer submitted that itAA 1936 s 109N (1) (A) required that a compliant Div 7A loan contract be recorded in writing “before the interest rate date for the year of return” in which the company`s loan was made. Thus, the taxpayer argued that a loan contract could be recorded in writing after the alleged advances. However, the AAT found that the principle applied only to circumstances in which it was possible to objectively demonstrate that remittances were made under an existing loan: cf. Rowntree and FCT  AATA 420 under . The conclusion is clear: in the absence of a pre-dated loan agreement, there must be simultaneous evidence (for example. B a director`s decision that has not been re-issued to support the nature of the transfer of the funds made).
The AAT stated, “s 109N says nothing about what is necessary to prove the objective existence of the loan” or whether it should be reduced to the letter. From a practical point of view, practitioners should check their clients` financial statements annually to identify business or business loans. First, it may be advisable to assume that all loans involving a business are subject to Division 7A, unless an exception applies. While business-to-business loans are not in themselves Part 7A, intermediate provisions may apply to businesses based on the destination of the borrowed funds. A private company may have a number of loans pooled to a shareholder or its partner at any time.