Quick answer
A Division 7A loan is a written loan from your private company to you (or an associate) that meets the ATO's rules, so the money isn't taxed as a dividend. It needs a signed agreement before the company's lodgment day, interest at least at the benchmark rate (8.77% for 2026-27), a 7-year unsecured or 25-year secured term, and a minimum repayment each year by 30 June. Confirm the details with your accountant.
Key points
- A complying loan stops money you've taken from your company being treated as an unfranked dividend.
- The written agreement must be in place by the company's lodgment day, which is often earlier than people expect.
- The benchmark rate for 2026-27 is 8.77%, up from 8.37% for 2025-26, so the same loan costs more to keep compliant.
- Minimum yearly repayments start the year after the loan is made and are due by 30 June, not by lodgment day.
- Miss a repayment and the shortfall can be treated as a dividend, so put the date in the diary.
Most solo directors meet Division 7A the same way: at tax time, when the accountant says “there’s a loan account showing you owe the company $50,000” and mentions a deadline nobody told you about. It sounds like a penalty. It’s actually a set of rules, and once you know them they’re very manageable.
This guide explains what a complying Division 7A loan is, what has changed for 2026-27, and a sequence you can take to your accountant. If you want the lender’s view of the same topic, our page on borrowing from your own company covers it. This one is the “how a proper loan works” reference.
What is a Division 7A loan?
A company is a separate legal person, so its money isn’t yours until it reaches you in a recognised form. If it gives you cash that isn’t wages, a declared dividend or the return of money you lent it, the ATO can treat the amount as an unfranked dividend. The rule reaches the company’s payments, loans and forgiven debts to shareholders and their associates, such as a spouse or a trust.
A Division 7A loan is the tidy way out. It’s a genuine loan from the company to you, documented so that it meets the ATO’s conditions. Then, instead of a dividend, it stays a loan that you repay with interest.
Three common ways it comes about:
- you transferred money out of the company “to sort later”;
- the company paid a personal bill, such as school fees or a mortgage repayment;
- you’ve owed the company a balance for years and it’s been rolling along.
What makes a loan “complying”?
According to the ATO, a complying loan has these features:
| Feature | What it means |
|---|---|
| A signed agreement | Dated and executed before the company’s lodgment day for the year the money left |
| Interest | Charged every year at no less than the ATO’s benchmark for that year |
| Length | Seven years if there’s no security; up to 25 if a registered mortgage over real property backs it and the ATO’s conditions are met |
| Yearly repayments | A minimum amount of principal plus interest, beginning the following year and landing by 30 June |
Your accountant or solicitor drafts the agreement. Plenty of accountants use a standard template, but a template alone isn’t enough: the loan has to actually run the way the document says.
What’s the benchmark rate for 2026-27?
The benchmark rate for the income year ending 30 June 2027 is 8.77%, up from 8.37% for 2025-26, according to the PwC August 2026 tax update. The ATO sets it each year from the Reserve Bank’s published variable housing loan rate, and the figure is on its benchmark rate page.
Two things to notice:
- The rate is a tax benchmark. It’s the minimum interest the company must charge you to keep the loan compliant, not an offer from any lender.
- Several summaries online still show last year’s 8.37%. Check the date on whatever you’re reading before using the number.
A higher benchmark means a higher minimum yearly repayment on the same balance, so it’s worth asking your accountant to rerun the numbers now rather than at June.
What’s the deadline, and which one matters?
There are two different dates, and owners mix them up:
- Lodgment day decides when the written agreement must exist. It’s whichever comes first: the return’s due date, or the day it’s really lodged. A return filed in early September pulls your deadline back to early September.
- 30 June decides when each minimum yearly repayment must be in.
The lesson from the first one: don’t wait until the return is almost ready. Bring it up when the year ends. And don’t let anyone backdate an agreement. A loan that wasn’t documented in time is a different problem, and one for your accountant to deal with properly.
A worked example (illustrative only)
Say a solo director has taken money out of the company during 2026-27 and the loan is placed on a 7-year unsecured complying agreement. Suppose, on 1 July 2027, the balance is $50,000 with 6 years left, and the benchmark rate is the 2026-27 figure of 8.77%. (Each year’s rate applies to that year, so the real number will differ.)
The ATO’s minimum yearly repayment formula takes the opening balance, the rate and the remaining term. On these assumptions the minimum repayment comes to roughly $11,070 for the year, of which about $4,385 is interest. The balance then falls and the calculation is repeated the next year.
Three takeaways:
- A $50,000 balance is not a $50,000 problem. It’s a yearly repayment of around a fifth of that, plus interest.
- That repayment has to come from somewhere. If the company can’t pay you more (wages or a declared dividend), the director’s own cash has to cover it, and the company’s accountant must record the repayment as a loan repayment, not a transfer.
- If the repayments are impractical, a longer secured term or a different way of clearing the balance may suit better. That’s an accountant conversation.
The ATO has a calculator to check these figures, and your accountant will do the same.
Does the loan have to be formal if the amount is small?
Yes. The rules don’t have a small-amount exemption, so a $5,000 transfer needs the same treatment as a $150,000 one. In practice, accountants often combine every amount owed into a single loan for the year so there’s one agreement and one repayment to track. If you’ve got several balances from different years, ask whether they’ve been amalgamated and what rate each one carries.
What if you miss a repayment?
Fall short of the minimum by 30 June and the gap can be taxed as a deemed unfranked dividend for that year: a tax bill on cash you may never have received. The ATO can sometimes allow extra time, for example after a natural disaster or an honest error, so call your accountant early instead of hoping nobody notices.
A calm checklist for this year
- Ask for a list of every amount you owe the company at 30 June 2026, including paid personal bills and old balances.
- Check whether each has a signed agreement. If not, ask what can still be done before lodgment day.
- Ask which benchmark rate applies to each loan and what the minimum repayment is.
- Plan where the cash comes from: wages, a declared dividend, a bonus, or simply the director’s savings. Agree it before 30 June.
- Set a pay rhythm so it doesn’t happen again. Our paying yourself guide shows how.
- Put the repayment date in your diary. 30 June, each year, for the life of the loan.
Our money mixing check is a quick way to see how tangled things are before that conversation. Every point here is general information, so confirm it with your accountant.
How does it look to a lender?
A lender reading your company’s accounts sees the loan balance as money that left the business. What helps:
- a signed agreement and a repayment history;
- a balance that’s falling, not growing;
- a clear explanation of what the original money was for.
What hurts is a balance that grows quietly year after year with no paperwork. If you’re thinking about borrowing in the next 12 months, tidy the loan account first. Our one-director company loans page explains what lenders look at with a single-owner company.
It also pays to remember that a business-purpose loan can’t be used to repay a personal debt to your own company. That one’s a personal matter. Business-purpose finance is for the business: stock, equipment, wages, working capital, or growth. If that’s what you’re weighing up, you can check your options here in about a minute.
Let’s see what the business itself could borrow
Getting your loan account in order is a good bit of housekeeping, and it tends to make the next conversation easier. If the business needs funding as well, whether for equipment, stock or to smooth cash flow, we’re happy to look at it with you.
The enquiry takes about 60 seconds, and your credit file isn’t touched just for asking, so there’s no credit check when you first enquire. We don’t pass your details around a pile of lenders, so you won’t get a flood of calls. A real person reads your situation, including any amount you owe your company, and rings you to talk it through. Please fill the form in accurately, so we can match the right option first time.
Frequently asked questions
What is Division 7A in simple terms?
It's the part of the tax law that stops private company profits reaching shareholders as tax-free loans or payments. If the company gives you money, the ATO can treat it as a dividend unless you repay it or put it on a complying loan by the deadline. Your accountant can tell you which applies to you.
What is the Division 7A benchmark interest rate for 2026-27?
It's 8.77% for the income year ending 30 June 2027, up from 8.37% for 2025-26. The ATO sets it each year from the Reserve Bank's variable housing loan rate. Check the current figure on the ATO's benchmark rate page and ask your accountant which year's rate applies to your loan.
When does the Division 7A loan agreement have to be signed?
Before the company's lodgment day for the income year the money was taken out. Lodgment day is the earlier of the due date for the company's tax return and the date it actually lodges. If your accountant lodges early, the deadline moves earlier too. Ask them for the date.
How long can a Division 7A loan run?
Up to 7 years if unsecured, or up to 25 years if it's secured by a registered mortgage over real property and meets the ATO's conditions. A longer term gives smaller yearly repayments but means the loan, and the interest on it, runs for longer.
What happens if I miss a minimum yearly repayment?
The shortfall can be treated as a deemed unfranked dividend for that year, which means tax in your hands. Speak to your accountant early, because there is a process for asking the ATO for more time in some circumstances.
Does Division 7A apply to sole traders?
No. It applies to private companies and the people connected to them. A sole trader takes drawings from their own business. Trusts that owe money to a company can have a related issue, which is one to raise with your accountant.
Will a Division 7A loan stop me getting a business loan?
Not by itself. Lenders reading your company's accounts will see the balance owed to the company and may ask whether it's documented and being repaid on time. A tidy, up-to-date loan usually makes the conversation easier than a loose balance with nothing in writing.