Distributable surplus within Div 7A


Q: A client borrowed $30,000 from his company last year, and the company had no net assets at the end of the year due to offsetting losses. How should this be handled in the accounts? Does it need to declare a dividend for the loan, apply it to the balance sheet, or mark it for Div 7A purposes? Also, the client made another $5,000 loan to himself in the following year, during which the company incurred a loss of $32,000. How is the distributable surplus calculated considering the $30,000 loan from last year?

A: In the first year, since the company had no distributable surplus, there are no Div 7A implications. The $30,000 loan can be recorded as a loan to the shareholder in the accounts, and no dividend needs to be declared. In the second year, with no distributable surplus again, there are no Div 7A consequences for the new loan. Overall, the company still has no distributable surplus.

If you have any questions, feel free to contact Tax Ideas Accountants & Advisers. You can also book an appointment through our live calendar.

Tags: Division 7A

Written by Ideas Group

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