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On what terms can I loan company funds to family members?

Learn about he implications of Division 7A to ensure you and your company don't run afoul of the law.

I have heard that the Bank of ‘Mum and Dad’ gives out more loans than any of the big banks. Most of the time, that loan can be structured in a way where the parents are protected but the kids get a good loan deal.

However, if funds are tied up in a private company, it can become difficult for that company to loan funds to family members, on the terms that they wish to.

Division 7A is part of the Income Tax Assessment Act 1936 and is intended to prevent profits or assets being provided to shareholders or their associates (such as their children) tax free. It works to treat payments by a company to a shareholder or their associate as a dividend for income tax purposes, even if the parties treat it as some other form of transaction such as a loan, advance, gift, or writing off a debt.

In case of parents wanting to use a private company to loan or gift funds to their children, if Division 7A applies, then their children will have to pay income tax on the money/loan received. This is usually less than ideal. 

If you are looking at loaning money to a family member, come speak to our Nambour solicitors. Sunshine Coast’s Butler McDermott law firm is here to help you make sure that you structure the loan in the right way, and protect everyone involved.

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