In the past, companies have ‘loaned’ money to their owners, which has sat on the books for many years. While this remains unpaid, you may hear your accountant talk about the Division 7A loans and what you need to do to manage them. Correctly documented, you will be committed to paying interest and repaying the monies under a loan agreement, at a rate prescribed by the ATO each year. While interest on our home loans have been at record lows, so too has the interest rate on your Division 7A loans.
This means it is a good time to consider some tax planning for the future management of your Division 7A loan(s).
While 2022/23 interest rates were set at 4.77% for outstanding loans, the ATO has recently announced that the interest rates for 2023/24 will jump to 8.27%. So you don’t get a nasty surprise on your loan payments, planning what you need to do can’t start early enough.
Ensure that when preparing for your 2023 financial year end accounting, actions are commenced to reduce the impact that will come in 2024 by giving your dmca advisor a call to review your circumstances.