Draw vs Loan!! What’s the difference??
A loan is one way to get money out of a company, and it's a complicated process. If you have a company structure, you may have heard your accountant mention Division 7A, or you may be frustrated with company loans.
Division 7A basically states that you cannot simply take money from a company with no recourse as a loan. We must repay that over time and with a minimum amount of interest, the rate of which is set by the ATO.
On a practical level, if you borrowed $100,000 from your company as an unsecured loan, you would have to repay it within seven years and with interest. Check to see if you're making the minimum payments on that loan. It can be tricky, and we believe it is a short- to medium-term method of removing money from a company. There are better ways or strategies we can use to avoid getting stuck in this Division 7A problem, and if you have it, you will be aware of it.
We also have trust loans, which we refer to as "Owner Drawings" - a common bookkeeping term in which we literally take $100,000 out of the trust's bank account; there are no Division 7A requirements or anything like that to repay that money. It's encouraging to see trusts being a little more flexible when it comes to loans.
If you are looking for guidance or thinking it’s time you made a change of accountant, please give us a call (07) 3804 7575. With over ten years of combined experience working with a diverse range of clients, Accountants360 is well equipped to assist your business. We offer Bookkeeping and Tax Services and would love to help you succeed.