Div 7a debt forgiveness is a lot less common than its better known side-kicks –  Div 7a loans and Div 7A payments. But still an important area to know your way around. And an issue best to be avoided. But don’t take our word for it. Peter Adams makes a lot more sense in the interview above than we do here in this post.

Div 7A Debt Forgiveness

When a private company holds a debt against a shareholder or the shareholder’s associate and then forgives this debt, s 109F will deem the forgiven amount to be a dividend if – and this is a big IF – if a reasonable person would conclude that the debt forgiveness happened because the debtor had been a shareholder or associate at some time.

Commercial Debt Forgiveness

A debt is taken to be forgiven when it would have been forgiven under s 245-35 ITAA97 (commercial debt forgiveness). But only if it is a commercial debt. This will include a debt that becomes statute-barred, because the entitlement of the creditor to sue for recovery has ended under the statue of limitations without payment of the debt.

Timing

The date the debt comes into existence does not matter. Only the date of the actual debt forgiveness does. However, the Commissioner has stated in the former PS LA 2006/2 (now withdrawn) that they won’t take active compliance action to treat statute-barred loans made prior to the enactment of Div 7A as deemed dividends.

MORE

Payroll Tax Grouping Provisions

Partial Commutations Require an AFSL

Payroll Tax Contractor Provisions

Disclaimer: Tax Talks does not provide financial or tax advice. This applies to these show notes as well as the actual podcast interview. We provide all information on Tax Talks for entertainment purposes only. The information might no longer be up to date or correct. You should seek professional accredited tax and financial advice when considering whether the information is suitable to your or your client’s circumstances.

Last Updated on 20 November 2018

Tax Talks spoke to Peter Adams - Principal at Augmentors - for more details.