Division 7A Distributable Surplus

The deemed dividend is reduced to the extent of the company's distributable surplus (s109Y).

The formula for calculating the distributable surplus is as follows:

Distributable Surplus =

            Net Assets

Less     Non-commercial loans

Less     Paid up share value

Less     Repayments of non-commercial loans

The distributable surplus is measured at the end of the year, and will not necessarily equal retained earnings. Distributable Surplus excludes:

depreciation

annual leave and long service leave

amortisation of intellectual property and trademarks

The value of the distributable surplus is based on the company's accounting records, however the Tax Office may apply a substituted value if the records do not accurately reflect values.