Tuesday, July 17, 2018

Some things don’t change – division 7A and contracts 101 **

View blog Some things don’t change – division 7A and contracts 101 **  by Matthew Burgess
Following on from last week’s post, today’s post considers another aspect of where company constitutions have the terms of a Division 7A loan or facility agreement embedded in them.

In most circumstances, it is generally the case that the Tax Office will accept that the terms of the facility agreement will regulate any debit loans made by the company from time to time.

One difficulty however that can arise in this regard is that from a simple contractual perspective, these loans will not be effectively created unless the recipient of the loan is in fact a party to the constitution.

Under the Corporations Act, the constitution is a contract between the members and directors.

This means that if, for example, a loan is made to a non- member or director by the company, then the facility agreement contained within the constitution will not be able to be relied on.

** For the trainspotters, ‘Don’t change’ is a song by INXS from 1982, learn more here