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November 24, 2020 at 4:35 am #1000476shelj81Member
- Total posts: 1
Hi there, I really want some straight advice because this is confusing to me. So we have paid ourself a $100k dividend payment in August based on last financial year profit- accountant said this was fine. Apparently our last year profit was $100k. It is currently termed as a loan to us to be changed to a dividend payment in May once our company tax is paid, and then changed to a dividend. Our accountant does this.
My question is.. if we make only the same profit this financial year as last one ($100k), because we have paid ourselves this amount as a dividend this financial year, does this mean technically zero profit therefore zero dividend to be paid next financial year?
BUT anything over the $100k profit we make, is. $120k profit means $120k less $100k dividend = $20k profit. Is that correct and how it works?
Thanks guys, I’m obviously hoping for another dividend next year after tax is done but it doesn’t seem like it?
Appreciate the help!November 24, 2020 at 6:00 am #1224515Paul – FS ConciergeModerator
- Total posts: 3,117
Hi and welcome to Flying Solo.
Loans on your Balance Sheet need to be repaid and interest charged – and the interest is not tax deductible.
You really need solid advice from a solid Accountant.
PaulNovember 27, 2020 at 3:02 am #1224516jayenMember
- Total posts: 23
are you trying to make them franked dividends?
why do you need to wait until may? can you file the tax return now and pay the tax due now?
repeating paul: you really need solid advice.
you can also try asking at https://community.ato.gov.au/November 27, 2020 at 9:06 am #1224517bb1Participant
- Total posts: 4,472
If you have $100K profit, can I suggest you go and pay an accountant to give you advise. Any advise you receive on a forum is worth as much as you have paid for it.November 29, 2020 at 10:43 pm #1224518JamesMillarParticipant
- Total posts: 1,675
ok simple example.
Therefore Profit BEFORE tax $100000
Less Company tax 26% $26,000
Remaining net profit after tax $74,000 (this is the important number)
Any part of this amount can either be paid out as a dividend (franked if the timing of franking credits has been managed correctly) or retained as profits and paid out as a dividend in a later year. Dividends do not have to be paid out but often for small companies, it’s required as part of a tax strategy to manage the related party loan accounts – that is probably what your accountant is doing.November 30, 2020 at 12:35 am #1224519jayenMember
- Total posts: 23
james’s reply led me to https://www.ato.gov.au/business/private-company-benefits—division-7a-dividends/in-detail/division-7a—loans/ which looks highly relevanthttps://www.ato.gov.au/business/private-company-benefits—division-7a-dividends/in-detail/division-7a—loans/ wrote:Meaning of ‘loan’ under Division 7A
Division 7A extends the meaning of ‘loan’ to include:
https://www.ato.gov.au/business/private-company-benefits—division-7a-dividends/in-detail/division-7a—loans/ wrote:Loans that are treated as dividends
- an advance of money
A loan will be deemed to be a dividend by Division 7A if:
November 30, 2020 at 12:40 am #1224520JamesMillarParticipant
- it is not fully repaid before the private company’s lodgment day for the year when the loan is made. A private company’s lodgment day is the earlier of the due date for lodgment, or the actual date of lodgment of the private company’s income tax return for the income year
jayen, post: 271515, member: 54988 wrote:james’s reply led me to https://www.ato.gov.au/business/private-company-benefits—division-7a-dividends/in-detail/division-7a—loans/ which looks highly relevant
- Total posts: 1,675
Yes Div7A is the section of the income tax legislation I was referring to that governs debit loans advanced by companies to related parties. It essentially prevents people endlessly drawing money out of their company without triggering personal tax.
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