It depends on the facts and the pattern of behaviour.
Division 7A allows a company loan to be repaid before the company’s tax return due date to avoid a deemed dividend. However, the tax law includes anti-avoidance rules that allow the ATO to ignore a repayment where it is not genuinely reducing the loan on a lasting basis.
These rules, set out in section 109R of the Income Tax Assessment Act 1936, are intention-based. Importantly, intention is not determined by what a taxpayer says, but by what a reasonable person would conclude from the surrounding facts and behaviour.
In practice, the ATO does not usually form a view based on a single isolated transaction. Instead, concern typically arises where there is a repeated pattern — for example, where loans are repaid shortly before year end and similar amounts are withdrawn again soon after, year after year. Over time, this pattern can indicate that repayments are only temporary and that company funds are being recycled.
Where such a pattern exists, the ATO may disregard the repayments, treat the loans as still outstanding, and apply Division 7A, potentially resulting in taxable deemed dividends.
That said, even a one-off arrangement can still fall within these rules if the surrounding circumstances clearly point to an intention to repay and re-borrow, particularly where the repayment is funded by further company loans.
Only where a loan is genuinely repaid, not effectively recycled, and does not fall within Division 7A would fringe benefits tax then be considered — and only if the loan arises from an employment relationship rather than share ownership.
In simple terms: The risk is not a single transaction in isolation, but a repeated pattern that shows company money is being temporarily “parked” to avoid tax.
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