During the 2020 tax year, Azure Services Pty Ltd (a private company for tax purposes) lent $80?000a shareholder (Jason). Assume that by the date of lodgement of the company's 2020 income tax return, the loan has not been repaid by Jason, nor has a loan agreement on commercial terms been drafted in relation to the$80?000to Jason. Assume also that the company had a distributable surplus of $60,000 as at 30 June 2020. How is this loan treated under Division 7A?

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Division 7A of the Australian Taxation Office (ATO) rules treats loans to shareholders or their associates by a private company as dividends unless they are under a formal loan agreement that meets specific conditions. Since the loan to Jason has not been repaid nor is it under a formal agreement, it is treated as a dividend. However, the amount treated as a dividend cannot exceed the company's distributable surplus, which is $60,000 in this case. Therefore, the loan is treated as a $60,000 unfranked dividend, as Division 7A dividends are typically unfranked.

During the 2020 Tax Year, Azure Services Pty Ltd (A