Low or nil interest loans provided to a shareholder or an employee

Sections 141 and 170 of the Taxation (GST and Remedial Matters) Act 2010

The Rewrite Advisory Panel considered that sections CD 28(9)(b) and NE 1E(2) of the 2004 Act contain an unintended change in law. The unintended change identified is that the provisions permit fully imputed dividends and exempt dividends to be offset against the balance of low or nil interest loans provided to a shareholder of a company or an employee, if the dividend was an exempt dividend paid to a shareholder of a qualifying company or if the dividend was a fully imputed dividend.

Those drafting changes were re-enacted in the 2007 Act as sections CD 39(9)(b) and RD 36(2) respectively.

Under the corresponding provisions of the Income Tax Act 1994, a shareholder-employee of a company could offset dividends derived from the company against the balance of a low or nil-interest loan if the dividend was assessable income but was not resident withholding income.

However, the Panel recommended that the Government consider retaining these drafting changes, on the basis that the outcomes are consistent with the policy for low or nil interest loans.

Key features

This amendment to the schedules setting out intended changes in legislation (schedule 51 of the 2007 Act and schedule 22A of the 2004 Act) confirm that sections CD 28(9)(b) and NE 1E(2) of the 2004 Act and sections CD 39(9)(b)(c) and RD 36(2) of the 2007 Act contain intended changes in outcomes

Application dates

The amendment to the 2004 Act applies from the beginning of the 2005-06 income year.

The amendment to the 2007 Act applies from the beginning of the 2008-09 income year.