💡 What Is a Deemed Dividend?

💡 What Is a Deemed Dividend?

A deemed dividend is not a real cash dividend — it’s a taxable amount that the ATO treats as if it were a dividend, even though no money was actually paid out as one.

In short:It’s a loan or payment from a company that the ATO decides should be taxed like a dividend, because it didn’t follow Division 7A rules.🧾 When Does a Deemed Dividend Happen?A deemed dividend can happen when:A shareholder or their associate borrows money from the company, andThe loan isn’t properly documented, orThe minimum yearly repayment (MYR) is not made, orThe loan isn’t fully repaid by the end of its allowed term (7 or 25 years).

💰 What Happens ThenThe unpaid amount is added to the borrower’s personal taxable income.It’s treated as an unfranked dividend (meaning no tax credit is attached).The company itself does not get a tax deduction for it.So, even though no money changed hands at that time, the ATO pretends a dividend was paid — and taxes it accordingly.

📉 Limited by Distributable SurplusThe deemed dividend can only apply up to the company’s distributable surplus — basically, the company’s available profits.If the company has no distributable surplus, then no tax is payable, but the loan is still considered non-compliant.

✅ How to Avoid ItKeep all Division 7A loans in writing and compliant.Make minimum repayments on time (by 30 June each year).Regularly review loan balances before the financial year ends.Seek ATO relief (Section 109RB) if a genuine mistake caused the issue.

✨ In Simple TermsA deemed dividend is the ATO’s way of saying:“You didn’t follow the loan rules — so we’re treating it like you received a dividend, and you’ll pay tax on it.”