A Division 7A[1] dividend in the Australian taxation system is an amount treated by the Australian Taxation Office (ATO) as an assessable dividend of a shareholder of a private company that attempts to make a tax-free distributions of profits to the shareholder, or an associate of the shareholder.
Division 7A applies to payments, loans and debts forgiven on or after 4 December 1997.
The amounts caught by the Division 7A rules include payments made by a private company to the shareholder or on behalf of a shareholder, and debts forgiven by the company.
Amounts covered by qualifying commercial loans, which must be in place on the company's tax return lodgment day, are exempt from the Division 7A rules.
The company may be taken to have paid a Division 7A dividend to the shareholder equal to the amount caught by the Division 7A rules, limited to the private company's distributable surplus.
Amounts covered by qualifying commercial loans are "excluded" from the calculations under Division 7A.
[4] To qualify, such loans must be in writing and meet the minimum interest rate and maximum term criteria set by the ATO.