Many Australian business owners operate through a private
company structure and, quite understandably, draw funds from their
company from time to time to meet personal expenses, fund lifestyle
costs, or support family commitments.
What many do not fully appreciate is that private drawings from
a company can trigger serious and unexpected tax consequences if
they are not structured and documented correctly.
This is where Division 7A of the Income Tax Assessment Act
frequently comes into play.
The Problem with Informal Drawings
Under Division 7A, a loan, advance or financial benefit provided
by a private company to a shareholder or their associate can be
deemed to be an unfranked dividend, unless it satisfies strict
compliance requirements.
