The ATO has set the record straight on some common misconceptions about Division 7A—the tax rules that prevent private companies from distributing profits or assets to shareholders (or their associates) tax-free.
In short, if a private company provides a payment, loan, or other benefit to a shareholder or their associate, it could be treated as a taxable dividend—even if it’s labeled as something else (like a loan or gift). This also applies if a trust distributes income to a company but doesn’t actually pay it.
Here are some of the biggest myths, along with the ATO’s reality check:
Myth 1: If I own a company, I can use its money however I want.
Reality: A company is a separate legal entity, so taking money or benefits from it has tax consequences.
Myth 2: Division 7A only applies to shareholders.
Reality: It applies to both shareholders and their associates (which is a broad definition).
Myth 3: I don’t need to keep records of company payments, loans, or benefits.
Reality: Business owners are legally required to keep proper records of all transactions.
Myth 4: I can dodge Division 7A by repaying my loan before the company lodges its tax return.
Reality: If you repay the loan but then borrow a similar (or larger) amount right after, the repayment may not count.
Myth 5: If I use my company’s money to fund another business or investment, there’s no tax issue.
Reality: Division 7A can still apply—regardless of how the loaned money is used.
The takeaway? If your private company makes payments, loans, or provides other benefits, it’s worth checking how Division 7A might apply. If you have any questions, chat with your contact at Quantiphy—we’re here to help.
