For people or entities that have borrowed from their related companies under complying Division 7a loan terms there has been a significant increase in the interest rate required to be charged under the terms of those loan agreements from 4.77% to 8.27%.
The impact of these changes are as follows:
- For companies lending funds on Div 7a loan terms the interest to be charged increases significantly and increases the taxable income and amounts repayable under the loan; and
- For borrowers the interest charged and repayments under the Div 7a loan will increase significantly.
Note that where the borrowed funds have been used for private purposes this will significantly increase the after-tax cost of those borrowings. Lenders in these circumstances may want to consider the repayment of the Division 7A loan to avoid the ongoing significant cost of the borrowing arrangements.
Should you have Division 7a Loan agreements in place we would recommend reviewing these arrangements to ensure that you understand and address the impact of these changes.
Please contact us on (07) 3910 5675 or [email protected] if you require further assistance in this area.