Division 7A where a debtor dies
Business Succession Update – Summer 2013
What happens if a private company owes money to a member or associate who dies?
Assume a simple scenario of where the member obtained a loan from the private company under a written loan agreement and then dies before the amount of the loan and accumulated interest is repaid.
As we know, had the member not died and any payment was made to the member, then the private company would have been taken to have paid the dividend to the taxpayer but according to the Commissioner, where the taxpayer is deceased, it is now the executor of the deceased estate to whom the money is paid. ID2002/741.
The interpretive decision goes on to argue that as the private company made the loan to the shareholder, the executor of the shareholder’s deceased estate is not treated as having received a deemed dividend in respect of the amalgamated loan.
However the Commissioner still applies the operation of Division 7A where payments (not a loan) were made to the deceased – private ruling 67826.