Fears of Div 7A danger from COVID-relaxed loan repayments unfounded



Fears of Div 7A danger

from COVID-relaxed loan repayments unfounded



The ATO has clarified its position regarding loans, and the repayments of loans that may have been put on hold for the period that COVID-19 has a grip on the economy and our lives.

An important sidebar to the ATO’s announcement is the implications regarding Division 7A — just 7A outcomes because a creditor has not insisted on payment justin case you have had some stress about possible Div 7A.

In normal circumstances, if a private company forgives a debt, it is considered a deemed dividend under Division 7A — “a debt is forgiven if a reasonable person would conclude a creditor will not insist on payment or rely on the borrower’s obligation to pay”.

But the ATO states that “allowing more time to replay a debt due to COVID-19 will not result in the debt being treated as forgiven”. Further, it says: “If a creditor only postpones an amount payable and the debtor acknowledges the debt, a debt is not considered forgiven. This is unless there is evidence that the creditor will no longer rely on the obligation for repayment.”

Note also that just before the new financial year, the ATO issued an announcement entitled Request to extend time to make minimum yearly repayments for COVID-19 affected borrowers. It said, in part: “As a result of the COVID-19 situation, we understand that some borrowers are facing circumstances beyond their control. To offer more support, we’ll allow an extension of the repayment period for those borrowers who are unable to make their MYR” (minimum yearly repayment).

Relating as it does to a possible inability of borrowers under Division 7A loan agreements to make the minimum yearly repayment required due to the COVID- 19 economic situation, the announcement provided a procedure whereby a borrower who is unable to make repayments on a Division 7A loan can request an extension of time to make the minimum yearly repayment.

The benchmark interest rate for Div 7A purposes, by the way, is 4.52% for the income year ending 30 June 2021, the ATO has announced, and is relevant to private company loans made or deemed to have been made after 3 December 1997 and before 1 July 2020 and to trustee loans made after 11 December 2002 and before 1 July 2020.


Electronic execution of documents during COVID-19


The COVID-19 pandemic has prompted state and territory governments to temporarily ease the manner in which documents are executed.

It is now possible under multiple jurisdictions to sign and witness certain documents electronically or via audio visual links. The changes address difficulties in executing documents amid social distancing and stay-at-home restrictions. However the requirements for signing and witnessing documents are highly prescriptive and specific to each state and territory, and you may need to seek legal advice as required depending on your individual situation.


Federal legislation and similar legislation in each state and territory provides that electronic signatures are able to be used to validly sign most contracts. While specific requirements in each state and territory vary, a valid electronic signature must usually satisfy three broad requirements:

■    Identification: a recipient must be able to identify the person signing the contract and confirm their intention to be bound by it.

■    Reliability: the method used to sign the document must be reliable. This is determined by considering all relevant circumstances and the purpose for which the electronic signature is required.

■    Consent: the recipient must consent to the document being signed electronically.

Note that there are state and territory-specific exemptions (such as in relation to certain property transactions) and you may need to seek legal advice depending on your particular situation.



The Victorian Government introduced special regulations specific to the COVID-19 pandemic. The Victorian regulations are highly prescriptive in relation to witnessing, signing and the use of video links for certain documents.

These regulations are due to expire on 24 October 2020, and at the time of writing the state government was yet to announce whether they will be extended.

Key changes regarding the remote execution of deeds, powers of attorney, wills, affidavits and statutory declarations include:

■    deeds can now be signed electronically in accordance with the requirements of the Electronic Transactions (Victoria) Act 2000, subject to other legislative requirements

■    in relation to transactions that are governed by the Electronic Transactions (Victoria) Act 2000:

  • witnessing signatures by audio visual link is now permitted, subject to the witness writing a statement that they observed the signing by audio visual link
  • signatures are now valid across separate copies of documents

■    declaring a statutory declaration is now permitted by audio visual link for the purposes of the Oaths and Affirmations Act 2018


The NSW Government introduced regulations this year that permit the witnessing and signing of documents via audio visual links. Relevant documents include deeds, statutory declarations, wills, powers of attorney and affidavits.

Similarly in the ACT, amended regulations also allows the witnessing of documents by audio visual link – namely affidavits, wills and general or enduring powers of attorney.

These laws state that the relevant documents can be witnessed via audio visual link if the witness, in summary:

■    observes the person signing in real time

■    confirms the signature was witnessed by signing the document or a copy of the document

■    is reasonably satisfied the document that the witness signs is the same document (or a copy of the document), signed by the signatory, and

■    endorses the document (or a copy of that document) by writing a statement specifying the method used to witness the signing in accordance with the particular legislation.


The Queensland Government introduced new legislation and amended existing regulations to broadly allow

deeds to be converted into electronic documents and electronically signed. Subject to complying with the requirements of the Queensland regulations, certain deeds no longer need to be witnessed.

Further, the new rules provide for the ability for affidavits, declarations and powers of attorney to be witnessed by audio visual link.


Limited witnessing of documents (including statutory declarations) is now permitted via audio visual link pursuant to new legislation introduced this year. The witness must, in summary:

■    observe the person signing in real time

■    confirm the signature was witnessed by signing the document (or a copy)

■    be reasonably satisfied the document the witness signs is the same document (or a copy of that document), signed by the signatory, and

■    endorse the document (or a copy) by stating the signing was in accordance with the legislation.


Western Australia, South Australia and the Northern Territory

The Western and South Australian governments (save as noted below) and the Northern Territory have enacted little or no legislation prescribing remote witnessing and electronic signing of documents in response to COVID 19. This may change in the future as the pandemic situation The South Australian Government has however extended the classes of persons who may witness statutory declarations.


The Australian Government Solicitor’s fact sheet

provides a comprehensive summary of the requirements that corporations and company officers must satisfy when executing documents remotely. Search for “Australian Government Solicitor Fact Sheet 38”