ATO Warns of Common Division 7A Errors

The ATO reminds shareholders of private companies that understanding how Division 7A of the tax legislation applies is crucial to avoiding costly tax consequences when accessing the company's money or other benefits.

While Division 7A can complex, most errors the ATO sees that result in its application are simple in nature, including:

• Shareholders not recognising that a company's money is not their money, and they cannot access it for personal use without tax consequences;

• Loans being made without complying loan agreements; and

• Applying the wrong benchmark interest rate when calculating Division 7A loan repayments.

These errors are often the result of common myths about Division 7A and how it works.

To support taxpayers' understanding of their tax obligations when managing private company money, the ATO has launched new content 'Division 7A Myths Debunked' on its website.