About the Debt Recognition (including pre-Div 7A Loans)

WHY DO I NEED A STATEMENT OF RECOGNITION?

Did your company lend you some money before 1997? Is it still deemed a loan by the ATO? Has the Limitation period deemed that the loan is no longer enforceable by the company? If yes, then it may no longer be a loan!

What was the ATO upset about?

What was happening was that the company would earn income. It pays the corporate tax rate, which is now 30%. The shareholder’s tax rate may be 48.5%. Therefore, if the shareholder takes the company income as a dividend the shareholder has to pay another 18.5% to ensure that the tax rate equals 48.5%. To avoid that extra tax burden the shareholder, or an associate, such a children and parents would merely “loan” the money from the company. The debt is never repaid. Section 108 is therefore an anti-avoidance section of the Income Tax Assessment Act 1936.

The Statement of Recognition stops the Statute of Limitation from destroying your Section 108 loan.

Once purchased you can freshen up your limitation period each year. For each person you can use this Statement of Recognition each year.

DOES THIS WORK FOR ALL LOANS?
Yes, any currently enforceable loan can be freshened up with this Statement of Recognition. It does not need to be a Division 7A loan, any loan made with enforceable loan agreements can be freshened up and should be freshened up with this document.

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