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ATO announcement: Extensions of time to make minimum yearly repayments for Division 7A loans

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The ATO today announced a streamlined process for taxpayers to make applications to extend the time to make minimum yearly repayments (normally required to be made by 30 June 2020) for COVID-19 affected borrowers under section 109RD. 

According to the ATO:

When there is a complying loan agreement between a private company (and certain interposed entities) and a borrower under section 109N, the borrower must make the minimum yearly repayment (MYR) by the end of the private company’s income year. This avoids the borrower being considered to have received an unfranked dividend, generally equal to the amount of any MYR shortfall (referred to as the shortfall).

As a result of the COVID-19 situation, we understand that some borrowers are facing circumstances beyond their control. To offer more support, we'll allow an extension of the repayment period for those borrowers who are unable to make their MYR by the end of the lender’s 2019–20 income year (generally 30 June) under section 109RD.

The process outlined by the ATO to request the extension is:

Borrowers can request the extension by completing a streamlined online application. We'll ask the borrower to confirm the shortfall, that the COVID-19 situation has affected them and that they are unable to pay the MYR as a result.

When we approve an application, we'll let the borrower know they will not be considered to have received an unfranked dividend. This is subject to the shortfall being paid by 30 June 2021. It won't be necessary to submit further evidence with the application.

If you have any general queries on the administrative relief for Division 7A, email [email protected]

This streamlined process only applies to applications for an extension of up to twelve months under section 109RD for COVID-19 affected borrowers. It is still open to a borrower to apply to obtain a longer extension of time outside the streamlined process under section 109RD, or for relief on the grounds of undue hardship under section 109Q (which has further requirements).

For further details on requesting an extension, click here.

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