Any payment made to the shareholder or an associate can be treated as a dividend for income tax purposes under Division 7A. It include gifts or writing off a debt and advance etc.
If trust has allocated income to private company buy did not pay and the benefit was provided to shareholder or its associates then Division 7A can be applied on these transactions. Purpose of division 7A is to prevent the profits or an assets being provided to shareholders or their associates’ tax free.
Generally deemed dividends are unfranked. Most effective way is to provide the benefit to the shareholder is to pay it as a normal dividend where company pays company tax and franking credits will be available to the share holder or their associates.
Directors’ fee or normal dividends does not come under Division 7A of income tax act. According to ATO, A payment or benefit that is potentially subject to Division 7A isn’t treated as a dividend if it’s repaid or converted into a Division 7A complying loan by the company’s lodgement day for the income year in which the payment or benefit occurs.
For the purpose of Division 7A, equity holders and non-share equity interests are treated in the same way as shareholders and shares.
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