On Wed 25.8.18, the ATO issued Taxation Determination TD 2018/14, confirming that the Div 7A benchmark interest rate is 5.20% for the 2018-19 income year (down from 5.30% for 2017-18).
The ‘benchmark’ rate is used as a minimum amount, that a company must charge, on a loan to a shareholder or their associate, to put the loan on a so called ‘commercial footing’. If the other requirements of s109N of the ITAA36 are met, also, then the loan will not be deemed to be a dividend to that shareholder or associate. Those other requirements have to do with the time period over which the principal and interest loan is repaid. It must be repaid, with interest, at least annually over 7 years, if unsecured, or 25 years, if secured against real property.
The benchmark interest rate is defined under subsection 109N(2) as ‘… the Indicator Lending Rates – Bank variable housing loans interest rate last published by the Reserve Bank of Australia before the start of the year of income.’
FJM 14.8.18
[LTN 141, 25/7/18]
Comprehension questions (answers available)
- Is the new rate 5.20% after being 5.30% last year?
- Is this the RBA business overdraft rate?
- Is this the minimum rate at which a principal and interest loan must be repaid, to avoid a loan by a private company, to a shareholder or associate, being deemed to be a dividend?
