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Paying back Company loans

Discussion in 'Accounting & Tax' started by MBowen, 6th Sep, 2015.

  1. MBowen

    MBowen Active Member

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    Heyo Lawyers/Accountants just wondering if someone can help me regarding my business/company structure. I recently had to put a large personal amount money into one of our business for some machinery we needed. The business had made the money back but now I'm unsure how to get it back. Can I just withdraw the original money back out of our company account or do I have to pay it back through PAYG and have to pay tax on it :(
     
  2. D.T.

    D.T. Adelaide Property Manager Business Member

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    Did you document it as a loan when you put the money in there? That'd be the best way, then the company can repay you and whatever rate and duration is agreed upon. There'd be no tax on repayments, but possibly on any interest surplus.

    Is the structure actually a company though?
     
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Was it a loan, a gift, or did you purchase shares?
     
  4. MBowen

    MBowen Active Member

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    @D.T. We didn;t as our machine broken and we had a commercial job the next day so wanted it done quick smart(Maybe I should say dumb start). Yes its a company structure we run two businesses off it we have 3 banks accounts one for the company, two for each business. I transferred the money into the company account and than trnasfered it to the business involved.

    @Terry_w
     
  5. MBowen

    MBowen Active Member

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    @Terry_w It was a loan with no interest, we just want the original amount back preferably without paying PAYG. The shares I have no idea how to work that lol
     
  6. DaveM

    DaveM Adelaide Buyers Agent & KFC Strategist Business Member

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    If it was booked against your directors loan acct and was made with tax paid dollars, then it can be paid back to the director and removed from the balance sheet.
     
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    You should document the loan with a contract and then cause the company to pay back the loan. Be careful not to breach corpotations law and watch out for the tax consequences. If there was no written loan agreement then you will probably be taxed as a deemed dividend.
     
  8. Corey Batt

    Corey Batt Finance Strategist Business Plus Member

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    Directors loan account, easy peasy - as per Davem's post.

    The only way you're going to really cause issues in these situations is when you do it the other way around without proper process.
     
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Easy peasy to get in trouble
     
  10. Corey Batt

    Corey Batt Finance Strategist Business Plus Member

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    http://dictionary.reference.com/browse/scaremonger

    Terry do you think directors loan accounts are a complex concept? Because really if someone can't balance a simple concept such as that, they shouldn't be a director.
     
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  11. BurnettGroup

    BurnettGroup Well-Known Member

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    This might sound like a silly question, but, where's your accountant and why isn't he / she answering this over a coffee in his / her office..?????
     
  12. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes. Extremely complex.
     
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  13. MikeLivingTheDream

    MikeLivingTheDream BCOM MCOM MTAX CPA CTA Registered Tax Agent

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    terry is correct. it isn't just a case of simple journal entries. Division 7a. Look it up. Without a complying loan agreement it will be treated as an unfranked deemed dividend. Terrible because you are effectively taxed on after tax profits which you considered to be a loan.

    Division 7A has been amended, effective from the 2004-05 income year, to allow a loan from a private company to be repaid or put on a commercial footing before the 'lodgment day' in order to avoid being treated as a deemed dividend.

    The 'lodgment day' is the earlier of the due date for lodgment and the date of lodgment of the private company's income tax return for the income year in which the loan is made.

    Get a complying loan agreement in place before either of those days. So no it isn't easy peasy. poor tax advice. but then brokers can't give tax advice so the accountant should be advising otherwise. ATO could easily argue it was an injection of capital. Gift to a company. Why is it a loan when there isn't a loan agreement ?

    "At call" loans may be classified as giving rise to either debt or equity interests in the company for tax purposes under the debt/equity rules. Anyone mention the debt/equity rules ? nope
     
    Last edited: 7th Sep, 2015
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  14. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    A significant number of company constitutions contain default "Div 7A loan agreements" by default in the document. These contain minimum provisions. This doesn't mean you should assume its a loan contract. Its not. I would still ensure company resolutions to borrow $X from you and how to repay it are very clear and that the loan terms are maintained / updated from time to time.

    In your example you are lending money TO the company rather than borrowing money from the company which can create a dividend problem (think of calling a taxable dividend a loan to avoid tax !!)
     
  15. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    In this case there doesnt appear to be a loan in place. No contract exists between borrower and lender neither oral no written. So taking money from the company must be a deeemed dividend and taxable.
     
  16. Bayview

    Bayview Well-Known Member

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    Is it possible to set up a loan agreement; either oral or written - at a later date to repay the monies contributed to the Company?

    For example; over the last 3 years I have contributed a chunk of our own personal funds into our business for cashflow. All the contributions were made with after-tax money.

    We have not recouped any of it back as yet, and each of those years the Company has not recorded a profit.

    But, after Oct 1, we will have received all our funds from our PPoR sale, and all our debts will have been paid out - including business loan, overdraft and business C/C.

    From this point on, we shall be able to start making good cashflow (and profit), and I want to start recouping my money from the business - but not pay tax again on the money I receive back.
     
  17. MBowen

    MBowen Active Member

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    Hi @BurnettGroup my accountant doesn't work on Sunday's especially fathers day. Plus its cheaper to ask here :)
     
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  18. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Various issues getting money back from a company. I might write a legal tip on it in a month or 2.

    Corporations law includes director related transactions. Fiduciary duties. Asset protection issues. Tax issues including div 7A. General contract law issues. Limitations act issues.

    Dont forget estate planning issues especially on death.
     
  19. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Primary facie without a loan agreement a transfer of money is a gift. Title to money vests in the possessor of that money.
     
  20. BurnettGroup

    BurnettGroup Well-Known Member

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    I'll leave that decision to you. I think theres a few that will give you the correct info. Tread carefully.