Jane Harris is getting married. Harris Holdings Pty Ltd want to give Jane $50000 towards the cost of the wedding.

Harris Holdings Pty Ltd is a private company for tax purposes and is owned by Andrew and Melissa Harris equally.

The balance sheet of Harris Holdings Pty Ltd for the year ended 30 June 2022 is as follows.

Assets Cash at bank $25000 Amounts owing by Jane Harris 50000 Property, plant and equipment (net of depreciation) 190000 Total assets 265000 Liabilities Accounts payable 12000 Bank loan 100000 Total liabilities 112000 Net assets $153000 Shareholders equity Share capital 5000 Retained profits 148000 Total shareholders equity $153000

On 1 January 2021, Harris Holdings Pty Ltd lent Jane $50 000. A written loan agreement was drafted stating that the loan was required to be repaid within 5 years. The loan is interest-free. This loan is shown as a receivable (under current assets) in the balance sheet.

Jane does not hold any shares in the company. Furthermore, she is not employed by the company in any capacity whatsoever.

The retained profits of Harris Holdings Pty Ltd on the date the loan was made (i.e. 1 January 2021) was $36 000.

The retained profits of the company as at 30 June 2021 was $42 000.

Required

(i) What are the income tax consequences in respect of the loan made by Harris Holdings Pty Ltd to Jane for the years ended 30 June 2021 and 30 June 2022?

(ii) How would your answer change if, instead of an interest-free loan, the interest payable on the loan was equal to the benchmark interest rate published by the Reserve Bank of Australia?