Question

I want to take out a loan from my business (a company) in order to invest in listed shares under my personal name. Are there any tax consequences to this?

Answer

The loan from the company to a related trust which is either a shareholder or associate of a shareholder of the company would be a Division 7A loan. Division 7A applies regardless of the purpose and use of the funds borrowed by the borrower.

To avoid a deemed dividend, a complying Division 7A loan agreement should be put in place and the minimum yearly repayments should be made. The loan cannot be just an interest free loan. It must comply with the requirements under s109N.

If the funds are used to acquire income producing assets for the purpose of deriving assessable income, the interest on the loan should be deductible to the trust under s8-1 of the ITAA 1997.