From time to time it makes sense that your company might be required to loan money out for private purposes.
Money withdrawn from a company for private purposes must be factored into the individual's taxable personal income, otherwise it could be recognised as an unfranked dividend.
In a recent case, CABEL Partners client wanted to liquidate a dormant company, throughout the process she came to realise that over 10 years ago there was a private loan in excess of $100,000 issued.
After a detailed assessment of the situation, we became aware of the total potential impact to our client. The assessment considered the consequence including interest and penalties of an unfranked dividend in 2006 with the total amount payable to the ATO being $125,000. The unfranked loan was holding back our client from achieving her goals as the company can’t be liquidated or struck off until problem was resolved.
This example demonstrates why we advise clients undertake an annual review of their matters. An annual review ensures, matters are handled properly and nothing is overlooked. In this circumstance were able to assist our client to lodge an application to have the dividend franked resulting in tax payable of $25,000, this has saved our client $100,000.
Please contact Phillip Browne should you wish to discuss this matter or other concerns you may have.