Requests for extension of time to make Division 7A loan repayments
When a private company makes a loan to a shareholder or their associate this can trigger a deemed dividend under Division 7A unless the loan is repaid or placed under a complying Division 7A loan agreement by the relevant deadline. When a complying loan agreement is put in place this prevents the full loan balance from being treated as a deemed dividend, but the borrower then needs to ensure that minimum loan repayments are made in each subsequent income year to prevent a deemed dividend from arising.
The deadline for making these minimum repayments is generally 30 June although section 109RD gives the Commissioner the power to extend the deadline if the borrower is unable to make the minimum repayment because of circumstances beyond their control. The ATO has recognised that due to COVID-19 some borrowers may find it more difficult than normal to make the minimum repayments by 30 June 2020.
As a result, borrowers can request an extension by completing an online application. Borrowers will be asked to confirm that COVID-19 has affected their situation and that this is the reason they are unable to make the minimum repayment for the 2020 income year. The ATO indicates that a response should generally be provided within five business days of lodging the application form. If an extension is granted by the ATO the borrower will have until 30 June 2021 to make the repayment for the 2020 income year. They will also need to ensure that they make the repayment for the 2021 year by this date to prevent a deemed dividend from arising.