Updated 31 August 2026
| Year | Opening balance | Interest | Minimum repayment | Principal | Closing balance |
|---|
Future years assume the benchmark rate stays at 8.77% and only the minimum is repaid each year. The actual rate is reset by the ATO every 1 July, so later rows will move.
Rates last verified 31 August 2026 against the ATO benchmark interest rate table. 2026-27: 8.77%. 2025-26: 8.37%. 2024-25: 8.77%. 2023-24: 8.27%. 2022-23: 7.47%. 2021-22: 4.52%. 2020-21: 4.52%. This tool runs entirely in your browser. General information only, not advice.
Division 7A of the Income Tax Assessment Act 1936 stops private company profits reaching shareholders or their associates tax free through payments, loans or forgiven debts. If a company lends money to a shareholder, a director who is a shareholder, or an associate such as a spouse or family trust, and the loan is not either repaid or put on complying terms before the company's lodgement day, the amount is treated as an unfranked dividend. Unfranked means no credit for the tax the company already paid, so the borrower pays tax on the full amount at their marginal rate.
A complying loan needs three things: a written agreement signed before the company's lodgement day, interest at or above the ATO benchmark rate, and a maximum term of 7 years unsecured or 25 years where the loan is secured by a registered mortgage over real property. From there, a minimum yearly repayment is due every 30 June.
The minimum yearly repayment under section 109E uses the loan balance at the start of the income year, the benchmark interest rate for the current year, and the years remaining on the term. It is a standard loan amortisation formula: balance multiplied by the rate, divided by one minus (one plus the rate) to the power of negative remaining years.
The rate that applies is the current year's benchmark rate, not the rate from the year the loan was made. That is why repayments on loans written in the cheap years of 2020 to 2022 jumped when the benchmark climbed from 4.52% to above 8%. For 2026-27 the rate is 8.77%.
A $120,000 unsecured loan made in 2025-26 with a complying agreement has 7 years to run at 1 July 2026. At 8.77%, the minimum repayment for 2026-27 is about $23,659, of which $10,524 is interest and about $13,135 reduces the balance. Run your own numbers in the calculator above and open the schedule to see every year to payout.
Pay less than the minimum and the shortfall is a deemed unfranked dividend in that year. Pay nothing without an agreement and the whole balance is the dividend. Either way the amount lands in the borrower's assessable income with no franking credits attached, and general interest charge stopped being deductible from 1 July 2025, so funding a catch-up with ATO debt now costs more than it used to.
Repaying the loan on 29 June and drawing the money back out in July is caught by section 109R, which ignores repayments made with an intention to reborrow a similar or larger amount from the same company. Repayments need to be genuine and from the borrower's own funds. Declaring a franked dividend and setting it off against the loan is the usual clean fix.
The deemed dividend is also capped by the company's distributable surplus, which is one of several reasons the right answer is rarely obvious from the loan account alone. That is a conversation for your tax accountant before lodgement day, not after.
Loans hiding in other accounts. New drawings often sit in expense or clearing accounts rather than a loan account. Each year's advances form a separate Division 7A loan with its own schedule, so one GL account can hold three loans.
Associates are caught. Loans to a director's spouse, children or family trust are treated the same as loans to the shareholder.
Trust distributions to a company changed in June 2026. In Commissioner of Taxation v Bendel [2026] HCA 18, the High Court held 5 to 2 that an unpaid present entitlement owed by a trust to a corporate beneficiary is not, of itself, a loan for Division 7A purposes. That overturned the ATO position held since 2010. The ATO's decision impact statement of 26 June 2026 accepts that doing nothing with the entitlement creates no Division 7A loan, but warns that actually dealing with the funds can still be a payment or loan, and section 100A, Subdivision EA and Part IVA all still apply. The Government has also announced a proposed 30% minimum tax on discretionary trust income from 1 July 2028. If your group has UPEs on complying loan terms because the old ATO view required it, do not unwind anything without advice. Check your distribution arrangements with our section 100A risk checker.
We prepare Division 7A agreements, repayment schedules and the dividend set-offs that fix shortfalls cleanly. Adelaide based, working with companies and trusts across Australia.
Talk to National Accounts8.77% for the income year ending 30 June 2027, up from 8.37% in 2025-26. The ATO sets it each year from the RBA's standard variable owner-occupier housing rate published just before 1 July.
The current year's rate. A loan made in 2021-22 at 4.52% still has its 2026-27 minimum repayment calculated at 8.77%. The origin year matters for the term, not the ongoing rate.
Before the earlier of the company's tax return due date and its actual lodgement date for the year the loan was made. A backdated agreement does not fix a missed deadline.
The shortfall becomes a deemed unfranked dividend unless the Commissioner exercises discretion under section 109RB or 109Q, which needs a genuine reason such as circumstances beyond your control. The usual practical fix is declaring a franked dividend and setting it off against the loan before 30 June.
Not automatically. The High Court held in Bendel in June 2026 that an unpaid present entitlement is not itself a Division 7A loan. But using the funds can still create one, and section 100A and Subdivision EA still apply, so existing arrangements should be reviewed rather than unwound.
It applies the same section 109E formula and current benchmark rates. The ATO calculator remains the authoritative tool, and neither replaces advice on your facts, especially where there are multiple loans, interposed entities or a distributable surplus question.
General information only. It does not consider your circumstances and is not tax, legal or financial advice. Figures verified 31 August 2026 and subject to change. Liability limited by a scheme approved under Professional Standards Legislation.
