🧾 Division 7A Loans — What You Need to Know (2025–26)

🧾 Division 7A Loans — What You Need to Know (2025–26)💡 Understanding Division 7A

Division 7A is a tax rule that stops private companies from giving tax-free money or benefits (like loans or payments) to their shareholders or related people.

If these loans aren’t properly managed or repaid on time, the ATO may treat them as dividends, which means they become taxable income for the borrower.

🏦 Keeping a Division 7A Loan Compliant

To stay compliant, every Division 7A loan must:

✍️ Be in writing and signed by the company by the lodgment due date

💰 Use the ATO’s set interest rate each year

📅 Have a maximum term — 7 years (if unsecured) or 25 years (if secured)

📆 Have minimum yearly repayments made by 30 June each year

When these rules are followed, the loan remains compliant and avoids tax issues.

⚠️ If the Minimum Repayment Is Missed

If the required repayment isn’t made by the end of the income year:

The unpaid amount is treated as a dividend under Division 7A.

This only applies up to the company’s distributable surplus.

If there’s no distributable surplus, there’s no tax, but the missed repayment must still be corrected.

Even without a surplus, the company is still considered non-compliant, so it’s important to take action quickly.

⏳ At the End of the Loan Term

When the 7-year or 25-year term finishes, any remaining balance must be fully repaid.

If not, the unpaid amount becomes a deemed dividend for tax purposes — unless a new compliant loan is set up before the deadline.

🧾 ATO Relief for Genuine Mistakes

If the missed repayment or loan issue happened because of an honest mistake or accidental error, the ATO may choose to:

Ignore the deemed dividend, or

Allow it to be treated as a franked dividend (to reduce the tax impact).

This is done under Section 109RB, but the company must show it was a genuine error and that the issue was corrected quickly.🔗 Learn more on the ATO website

✅ How to Stay on Track

Plan loan repayments early each year

Use the ATO Division 7A calculator to check the correct amount

Keep clear records of interest, repayments, and agreements

Review your distributable surplus before year-end

Get professional advice if you’re unsure

🏁 Key Takeaway

Division 7A loans can be useful, but they need careful handling.Missing repayments or ignoring loan terms can easily turn into unwanted tax bills.Stay organised, pay on time, and review your loans regularly to stay compliant in 2025–26 and beyond.