NSW Division 7A loan repayment

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TTS

Active Member
19 August 2020
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My wife and I own two private companies. Company A has operated since 1979 in the same line of business. It has retained profits in excess of $3M and available franked dividends of $1M. Company B was incorporated two years ago and hasn't traded.
My wife and I owe Company A $2.2M via a Div. 7A loan, which is due for repayment soon. I propose the following method of payment:
My wife and I raise $2.2M via a mortgage over our property. We lend that money to Company B. Company B then buys the shares in Company A from my wife and I for $4.5M, the value of the balance sheet. It makes a down payment of $2.2M and enters into an agreement with my wife and I to repay the balance ($2.3M) over a period of 10 years. My wife and I use the down payment to pay out the Div. 7A loan from Company A. Company A lends the $2.2M to Company B (which now owns Company A). Company B repays the loan from my wife and I ($2.2M), and my wife and I pay out the mortgage to the lending institution.
Going forward, Company A continues to trade and earn profits, which it pays to Company B as dividends. Company B uses this income to make repayments to my wife and I for the amount still outstanding on the share purchase. It also pays interest to Company A for the $2.2M loan.
Can you please advise whether the above series of transactions is a legal way to deal with the Div. 7A loan?