If you run your business through a company and you have taken money out for private use, Division 7A could apply to you. With the ATO receiving more data from banks, payroll and payment platforms, shareholder loans are an area where small mistakes can turn into a tax bill.

What Division 7A does

When a private company lends money to a shareholder or their associate, or pays for their private expenses, the amount can be treated as an unfranked dividend. That means you may pay tax on it at your personal rate, with no franking credits to offset it.

A loan avoids that outcome if it is fully repaid, or put on a written complying loan agreement, by the company's lodgment day. That is the earlier of the due date and the actual date the company tax return is lodged.

The numbers to know

  • Benchmark interest rate: The rate for the 2026-27 income year is reported as 8.77 per cent, up from 8.37 per cent in 2025-26.
  • Maximum terms: 7 years for an unsecured loan, or up to 25 years if it is secured by a registered mortgage over real property that meets the value test.
  • Minimum yearly repayment: Each year after the loan starts, you must repay at least the minimum amount by 30 June. A shortfall is treated as an unfranked dividend.

Loans taken before 1 July 2026 use the rate for the year of repayment, so the repayment due by 30 June 2027 is calculated using 8.77 per cent.

Why it matters now

The ATO is receiving Single Touch Payroll data, bank and payment processor data and super reporting. Commentators warn that private spending paid through the business, and owner loan balances that keep growing, are common tripwires when cash is tight.

What to do

  • Check your loan account balance today. Ask your bookkeeper for the current figure, including private spending paid by the company.
  • Look at your 2025-26 position. If a loan from last year is not yet repaid, talk to your accountant about a written agreement before the lodgment day for that return.
  • Diarise 30 June 2027. Work out the minimum repayment early and make sure the money moves in time.
  • Pay yourself properly. Salary, dividends or genuine repayments are cleaner than ad hoc withdrawals.
  • Keep business and private spending apart. Use separate accounts and cards.

The bottom line

Division 7A is easy to trigger and costly to fix after the fact. A short check now, while you still have time before year end, can save a lot of stress later.