Using business money and assets for personal benefit

The ATO is focusing on Division 7A issues that arise where small businesses use money and assets belonging to a private company for personal use or benefit.

Common errors the ATO has seen include:

• shareholders (owners and associates) not understanding that a company is a separate legal entity and the company's money and assets don’t belong to the shareholders, such as using company assets for private purposes and using a single bank account (or credit card) for private and company expenses, making it difficult to distinguish between private and business expenditure
• poor or no business records
• not meeting Division 7A requirements when making, repaying and managing loans made to shareholders or their associates.
  

The ATO is also focusing on common errors where loans are made from private companies to shareholders and associates:

• not entering a written complying loan agreement before the company’s lodgment day
  
• loan agreements being made between the wrong entities
  
• private companies charging interest on loans below the benchmark interest rate
  
• private companies not declaring interest earnt on Division 7A loans in their assessable income
  
• the private company using journal entries to record repayments that haven’t been made
  
• shareholders or their associates not meeting their minimum yearly repayments due to not making their repayments by the 30 June deadline
  
• incorrectly calculating the minimum yearly repayments resulting in them paying less than the required repayment amount to the private company, for example, by applying an interest rate less than the benchmark interest rate
  
• borrowing money from the private company to make a minimum yearly repayment.
  

More details here.

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