Q: A dwelling house is owned by a proprietary limited company in recently. It is proposed that the company would lease the property to its directors and shareholders (mother and father) for use as a residence. In case it is relevant, the property would not be the mother and father’s principal place of residence. The mother and father would pay an arm’s length market rental for the use of the property. Does it correct that while the provision of the residence would constitute a payment for Div 7A purposes, whenever an arm’s length market rental is paid, the amount of the payment is nil under s 109CA (11) of ITAA 19367? If the mother and father are not employees of the company, is there any other revenue consequence arising from the proposed residential lease?
Q: A client who took a $30,000 loan from his company last year. At the end of the year, the company had no net assets. It made a profit of around $60,000 but retained losses offset this and there was no distributable surplus. How to deal with this in the accounts? Does it need to include an unfranked dividend for the loan, apply it to the loan in the balance sheet, reduce it to nil and not declare the dividend in the shareholder return as it is not taxable? Or need to leave the loan in the balance sheet, not declare any dividend, mark it as being assessed for Div 7A purposes? In the following year, the taxpayer made another loan to himself of $5,000. The company made a loss of $32,000. How is the distributable surplus calculated if I have left the loan in the account for the $30,000 from last year?
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