A deemed dividend arises under Division 7A of the Income Tax Assessment Act 1936 (ITAA 1936) when a private company makes a loan, payment, or forgives a debt to a shareholder or associate and the arrangement does not meet the requirements for a complying loan by 30 June of the income year. In practical terms, this means the loan must be documented with a written loan agreement, charged interest at or above the ATO benchmark rate, and repaid by the minimum yearly repayment amount each income year. If any of these requirements are not met, the ATO treats the unpaid amount (or the shortfall) as an unfranked dividend paid to the shareholder — meaning they must include it as assessable income without any franking credit offset. ChangeGPS Division 7A identifies deemed dividend risk in Step 3 — Compliance Check, flagging loans where minimum repayments have not been met or where the interest rate is below the benchmark.
What is a deemed dividend and when does one arise in Division 7A?
Explains what a deemed dividend is under Division 7A and how ChangeGPS identifies compliance risks and shortfalls