Division 7A loans
Record a company's loans to shareholders, track the minimum yearly repayments and spot a shortfall before it becomes a deemed dividend.
Division 7A is the tax rule for money a private company lends to its shareholders or their associates. If the loan is on complying terms and the minimum yearly repayment is made, it isn't treated as a dividend. If a repayment falls short, the shortfall is taxed as a deemed dividend.
How do I record a loan?
- Open the client and go to TaxDivision 7A.
- Choose Add loan.
- Enter the Borrower, the Year made and the Principal.
- Pick the Term: 7 years (unsecured) or 25 years (secured).
- Add a Description if you like.
- Choose Add loan.
Billbook builds the schedule for each year: Opening balance, Interest, Min. repayment, what was Repaid and any Shortfall.
How is the schedule worked out?
- The first minimum repayment is due in the income year after the loan was made.
- Each year's interest is the opening balance times that year's benchmark rate.
- The minimum repayment is the even yearly amount that clears the loan over the years left. In the last year, it's the whole balance plus interest.
- The closing balance is the opening balance plus interest, less what was repaid.
- The schedule runs for the full term, or stops early once the loan is paid off.
The benchmark interest rate for each year comes from the rule book, so you never type it in. A year that isn't published yet uses the latest published rate, so check it again once the ATO announces it.
How do I record a repayment?
- On the loan, choose Repayment.
- Pick the Income year, then enter the Amount and Paid date.
- Choose Record repayment.
Several repayments in the same income year are added together.
How do I fix a loan or repayment?
Choose the pencil on the loan to change its details, then choose Save. For a repayment, open the recorded repayments under the loan and choose the pencil next to it. The bin deletes instead. Deleting a loan removes its repayments too. Only people with the tax permission can add, edit or delete.
How do I mark a loan repaid or written off?
Choose the pencil on the loan, set the Status to Active, Repaid or Written off, then choose Save. The status is a label for your records. It doesn't change the schedule, and writing off a loan can be a deemed dividend, so check that too.
What if a repayment falls short?
The loan shows Deemed dividend, and the shortfall row shows how much. Talk to your client before year end so they can top it up in time.
Billbook doesn't put the deemed dividend on any return for you, so add it to the shareholder's return yourself. Amalgamated loans aren't supported, so record each loan on its own.
Check this screen before each income year ends, while there's still time to make the repayment.
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