Private company loan arrangement to obtain tax-free distributions and avoid deemed dividends

During a financial year the private company (the company) advances, loans or otherwise credits amounts to a shareholder that are treated as a debt owing to the company. 2. At the end of the financial year, the company makes a further loan by drawing a cheque in favour of the shareholder in the amount of the shareholder's previous debt to the company, including interest accrued. 3. The shareholder endorses the cheque in favour of a financial entity associated with the promoter of the arrangement. 4. The financial entity endorses the cheque in favour of the company. 5. The company ensures the cheque remains in 'safekeeping' for 5 years, although it is not presented or banked for payment. 6. The company treats the cheque as payment of the shareholder's debt to it, despite the cheque never having been presented or banked for payment. 7. The promoter entity advises the shareholder and the company that three conditions must be attached to the cheque, being that: i. the cheque will not be presented and banked for payment, and ii. the cheque will not form the basis of a claim or marked for payment, and iii. the cheque will be retained after it becomes stale. 8. Due to the deferral of tax for each year, the shareholder and the company enter into a subsequent arrangement the following year, with an ever-increasing amount of tax involved.