Updated 7 September 2026
In this guide
There is no prescribed form. The ATO's position is that a written agreement should identify the parties and set out the essential conditions of the loan: the amount, the date it was drawn down, the interest rate, the term, and the requirement to make minimum yearly repayments. Then both parties sign and date it.
That is the whole legal requirement. Most templates sold online are twenty pages because length reads as thoroughness, not because Division 7A asks for it.
Four things have to be true for the agreement to work:
| Requirement | What it means |
|---|---|
| In writing, in time | Signed before the earlier of the company's tax return due date and the date it actually lodges, for the year the money came out |
| Interest at the benchmark rate | At least the rate the ATO publishes for each income year. 8.77% for 2026-27, reset every 1 July |
| Maximum term | Seven years, or twenty five if the whole loan is secured by a registered mortgage over real property |
| Minimum yearly repayment | Principal and interest, paid by 30 June each year from the year after the loan was made |
If no agreement is in place by lodgment day, the whole balance is an unfranked dividend in the borrower's assessable income. No franking credit for the tax the company already paid, and no deduction to anyone. On $150,000 at the top marginal rate that is roughly $70,500 of tax on money that was already taxed once.
The generator below produces a complying agreement in plain English, with the current benchmark rate and a repayment schedule to payout. It runs entirely in your browser. Nothing you type is sent anywhere.
It will also tell you when not to use it, which is the part that matters most this year.
If you take money out of your own private company and it is not wages, a dividend, or repayment of a real debt, the tax law treats it as a dividend to you. An unfranked one, taxed at your marginal rate with no credit for the tax the company already paid.
A Division 7A loan agreement is how you stop that. You sign a document saying the money is a loan, you charge interest at the rate the ATO sets, and you pay it back over seven years. Do that and it is a loan. Do nothing and it is a dividend.
Interest at 8.77% for 2026-27, reset by the ATO every 1 July. A minimum repayment every year by 30 June, principal and interest, until it is paid off. Miss one and the shortfall is taxed as a dividend. The company cannot forgive the loan later without triggering the same problem.
On a $150,000 unsecured loan that is roughly $29,600 a year for seven years. Work out your own number below before you commit to it.
Everything stays in your browser. Nothing is sent anywhere.
The balance still owing at 30 June.
Usually 30 June of the year the money came out.
We prepare and review these for private companies across Australia, including the repayment schedules and the dividend set-offs that fix a missed year. Send us the draft and the loan account.
Benchmark rates are the ATO published rates for the 2021-22 to 2026-27 income years, verified 7 September 2026. General information only, not legal or tax advice. Groups with multiple loans, security, interposed entities or a distributable surplus question should get advice before signing.
Three situations where a Division 7A loan agreement is the wrong answer, and signing one makes things worse rather than better.
An unpaid trust distribution owed to your company. For sixteen years the ATO treated these as loans, and the standard fix was to put them on complying terms. On 10 June 2026 the High Court decided Commissioner of Taxation v Bendel, holding by a five to two majority that a company simply not calling for payment of its entitlement is not a loan. The ATO accepted that in its decision impact statement of 26 June 2026 and is withdrawing its determination. Signing an agreement now would convert something that is not a loan into one, permanently, with interest and repayments attached to it.
That is not a free pass. Where the trust passes the money on to a shareholder of the company or their family, a separate set of rules taxes it in the year the money moved. And leaving an entitlement unpaid changes where the arrangement sits under the ATO's section 100A guidelines. Both depend on your trust deed and your resolutions, so this one is worth a conversation rather than a template.
A loan to another company. Company to company lending is outside these rules, as long as the borrower is not holding the money as trustee. Two catches: if that company then passes the money to a person, the rules trace through and treat it as a loan to the person, and if the borrowing company is acting as trustee the exception does not apply.
A year that has already been lodged. Once the company has lodged its return for the year the money came out, a document signed afterwards does not protect that year. Dating it earlier is a bigger problem than the one it solves. There are still real options, including asking the ATO to exercise its discretion where it was an honest mistake, an amended return, or treating the balance as a dividend. Each needs to be put properly.
The default term is seven years. Twenty five is available only where the whole loan is secured by a registered mortgage over real property, and where, at the time the loan was made, the property was worth at least 110% of the loan after deducting anything secured over it in priority.
Two things catch people out. The mortgage has to be registered on the title. A caveat or an unregistered mortgage does not qualify, and until it is registered the loan is a seven year loan with seven year repayments. And if the mortgage is later discharged, the maximum term shortens and the agreement has to be varied straight away.
A $150,000 unsecured loan made in 2025-26 has seven years to run at 1 July 2026. At 8.77% the minimum repayment for 2026-27 is about $29,574, of which $13,155 is interest that the company has to declare as income. Over the seven years the borrower pays roughly $207,000 to clear $150,000. Run your own figures in the generator above, or in our Division 7A calculator.
The agreement is the start of the obligation, not the end of it. From the year after the loan was made, a minimum yearly repayment of principal and interest is due by 30 June, not at tax time. Pay less than the minimum and the shortfall is a deemed dividend for that year.
The benchmark rate resets every 1 July, so the repayment changes each year even though the loan does not. A figure worked out once and rolled forward comes up short. Loans written in the cheap years of 2020 to 2022 at 4.52% are now being serviced at 8.77%.
Two more traps worth knowing. Repaying the loan on 29 June and drawing the money back out in July is disregarded; repayments have to be genuine and made from the borrower's own funds. And the company cannot quietly write the loan off later, because forgiving it produces the same deemed dividend the agreement was signed to avoid. The usual clean fix for a year that is going to fall short is declaring a franked dividend and setting it off against the loan before 30 June, and the order the paperwork is done in matters.
If the loan sits inside a family group with a trust, it is worth checking the whole structure rather than this one document, because Division 7A rarely turns up on its own.
We prepare Division 7A agreements, repayment schedules and the dividend set-offs that fix a shortfall cleanly, for private groups across Australia from our Adelaide office. If your loan account is larger than you expected this year, the cheapest version of this conversation happens before lodgment day.
It must be in writing and signed before the company's lodgment day for the year the loan was made, charge interest at or above the ATO benchmark rate of 8.77% for 2026-27, and run no more than seven years unsecured or twenty five years secured by a registered mortgage. It must identify the parties and state the amount, drawdown date, rate, term and the repayment obligation.
Yes. There is no prescribed form and no requirement to use a lawyer or a document provider. The agreement has to contain the essential terms and be signed and dated in time. The generator above produces one. Where it is worth paying for advice is the analysis around it, not the document itself.
Repay the money in full before the company's lodgment day, or declare a franked dividend large enough to clear the balance. Both avoid a seven year commitment. Paying wages or director fees also works but carries PAYG withholding and superannuation. A loan agreement is the fallback when none of those suit the cash flow.
Yes. Associates of a shareholder include family members and their trusts, so a company to trust loan needs the same complying agreement as a loan to an individual. A loan to another company is different and is generally outside these rules, unless that company holds the money as trustee.
8.77%, up from 8.37% in 2025-26. The ATO sets it each year from the Reserve Bank's standard variable owner-occupier housing rate published just before 1 July, and it does not change if the Reserve Bank later revises that rate.
Generally no, following the High Court's decision in Commissioner of Taxation v Bendel on 10 June 2026 and the ATO's decision impact statement of 26 June 2026. An entitlement the company has simply not called for is not a loan. Signing an agreement over one would create a loan that did not exist, so existing arrangements should be reviewed rather than unwound or added to.
This page and the generator provide general information only, current at the date shown, and do not constitute personal tax, legal or financial advice. Consider your own circumstances or speak with us before acting. Liability limited by a scheme approved under Professional Standards Legislation.
