A loan will be a complying 25 year loan under Division 7A if the
requirements in section 109N are satisfied. In summary, these
requirements are as follows:
The loan must be pursuant to a written agreement entered into
before the due date for lodgement of the company tax return for the
year in which the loan is made (or refinanced if a 7 year loan is
converted to a 25 year loan).
The loan must be secured by a registered mortgage over real
When the loan is first made (or refinanced) the market value of
that real property must be at least 110% of the
amount of the loan.
The legislation is silent as to what, if any, consequences arise
if the property (or properties) over which the loan is originally
secured is changed. This could occur in a number of ways including
there are multiple properties securing the loan and one or more
of those properties is released from the mortgage; or
the existing mortgage is released and replaced with another
mortgage on the same terms but over different properties.
Cooper Grace Ward have recently obtained several private rulings
from the ATO confirming that releasing some of the properties
secured by the mortgage or substituting mortgages over new
properties will not trigger any deemed dividend under Division 7A
the market value of the properties at the date the loan was
originally made or refinanced and at the date that the change
occurs it is not less than 110% of the amount of the loan; and
the terms of payment for the loan are not altered in any
The position adopted by the ATO in these private rulings is not
unexpected given that the underlying policy of the legislation is
simply to ensure that 25 year loans have adequate real property
security and it should not really matter whether the identity of
that property changes over time.
However, this uncertainty in the legislation has been a
practical problem for a number of clients seeking to refinance
their loan arrangements and the practical approach taken by the ATO
Winner – EOWA Employer of Choice for Women Citation 2009,
2010, 2011 and 2012
Winner – ALB Gold Employer of Choice 2011 and 2012
Finalist – ALB Australasian Law Awards 2008, 2010, 2011 and
2012 (Best Brisbane Firm)
Winner – BRW Client Choice Awards 2009 and 2010 - Best
Australian Law Firm (revenue less than $50m)
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
ATO has released 2 draft fact sheets relating to the 2010 amendments to corporate law and tax in relation to dividends.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).