More on Employee Share Schemes
Where the employer is a private company, the question arises as to whether the loan may give rise to a deemed dividend under Division 7A.
Under Section 109D ITAA 36, such a loan may give rise to a deemed dividend to the borrower, especially where the borrower is a shareholder of the company (or an associate of a shareholder) when the loan is made; or where a reasonable person would conclude that the loan is made because the borrower has been such an associate or shareholder at some time.
Importantly, Section 109ZB(1) ITAA 36 provides that a loan may give rise to a deemed dividend under Division 7A even where it is made in respect of employment. This effectively means that, in terms of anti-overlap rules, Division 7A “trumps” FBT.
Where a loan would give rise to a deemed dividend under Section 109B (e.g. because the employee is already a shareholder of the company), the solution may be to ensure that the loan satisfies “the Division 7A loan” requirements of Section 109N with regard to the loan term, interest rate and repayments.