A loan from your trading company to fund your home loan offset account is a Division 7A loan. It must be repaid in full, or placed on a complying loan agreement, before the company lodges its tax return for the year the loan was made. Repaying it and immediately drawing the money back out does not reset that clock.

It is one of the most common questions we get from business owners who have cash sitting in their trading company and a mortgage sitting at home. The logic is sound. Money in an offset account reduces the interest you pay, and that saving is not taxed. The problem is that most owners get the Division 7A mechanics wrong in two specific places, and one of those mistakes can turn a $300,000 loan into a $141,000 tax bill.

Mina Baselyous is a Chartered Tax Advisor (CTA), Certified Practising Accountant (CPA) and Registered Tax Agent. This article walks through the exact scenario we are asked about most, with the numbers, so you can see where the benefit really sits and where it disappears.

The Scenario

A trading company is owned by a family trust. Smith is a beneficiary of that trust and also a director of the company. He wants to borrow $300,000 from the company, park it in the offset account against his home loan, and save interest. The questions that follow are always the same four, and the answers are not what most owners expect.

Who Owes the Money, Smith or the Trust?

Smith owes it personally. The loan is made to him, so it is his Division 7A loan, not the trust’s. The company’s shareholder is the trust, and Smith is caught because a beneficiary of a trust is an associate of the trustee. His directorship has nothing to do with it.

This catches people out constantly. Section 109D of the Income Tax Assessment Act 1936 applies where the borrower is a shareholder of the private company, or an associate of such a shareholder, when the loan is made. Smith is not a shareholder. The trust is. But section 318(3) treats “any entity that benefits under the trust” as an associate of the trustee, so Smith is an associate of the shareholder and the loan is squarely within Division 7A.

In practice, says Mina Baselyous (CPA, CTA, Registered Tax Agent), the mistake we see most is owners assuming that because they are “just the director” and the shares are held by the trust, Division 7A does not reach them. It reaches them through the beneficiary relationship, not the directorship. Being a director of a company you have no interest in at all would not trigger it. Being a beneficiary of the trust that owns it does.

The practical consequence matters. The debt sits on Smith’s personal balance sheet, the repayments come from his after-tax money, and if it is ever forgiven it is Smith who is assessed, not the trust.

When Does the Loan Have to Be Repaid?

Before the company’s lodgment day for the year the loan was made. Lodgment day is the earlier of the due date for the company’s tax return and the date the return is actually lodged. Miss it, and the whole unpaid balance is treated as an unfranked deemed dividend in Smith’s hands for that income year.

That word “earlier” does real damage. If your company’s 2026-27 return is due 15 May 2028 but your accountant lodges it in October 2027, the deadline was October 2027. Lodging early shortens your own window. We have seen owners lose the benefit entirely because the return went in ahead of schedule and nobody connected the two.

The alternative is to put the loan on a complying loan agreement under section 109N before that same lodgment day. That requires a written agreement, an interest rate at least equal to the ATO benchmark rate, and a maximum term of seven years unsecured or 25 years secured by a registered mortgage over real property. More on what that actually costs further down, because it changes the answer completely.

What the Interest-Free Window Is Actually Worth

This is the real benefit, and it is substantial. A loan drawn at the start of an income year and repaid by lodgment day can sit with you interest-free for around 22 months. On $300,000 against a mortgage at 5.52%, that is roughly $31,050 of interest you never pay, and none of it is assessable income.

Work it through. Smith draws $300,000 on 1 July 2026, the first day of the 2026-27 income year. The company’s 2026-27 return is due 15 May 2028 through a tax agent. That is 22.5 months of use.

• Mortgage rate: 5.52%, the average outstanding variable rate for owner-occupiers reported by the Reserve Bank of Australia as at the July 2026 data release.
• Interest saved: $300,000 at 5.52% for 22.5 months = $31,050.
• Tax on that saving: nil. It is an expense you did not incur, not income you received.
• Pre-tax salary needed to net the same amount at the top marginal rate of 47%: $58,585.

That last line is the one worth sitting with. To have $31,050 of after-tax money to throw at your mortgage, a top-rate earner has to earn almost $59,000 before tax. The interest-free window achieves the same result without a dollar of income tax, provided the loan is genuinely repaid on time.

The catch is in that last clause, and it is where most of these arrangements fall apart.

The Trap: Repaying, Then Taking the Money Straight Back Out

If you repay the loan before lodgment day and then draw the money back out, the repayment can be ignored entirely. Section 109R disregards a repayment where a reasonable person would conclude that, at the time of the payment, you intended to obtain a further loan of a similar or larger amount. The original loan is then treated as never repaid.

The cost is brutal. If Smith’s $300,000 repayment is disregarded, the full $300,000 becomes an unfranked deemed dividend. At the top marginal rate including Medicare levy, that is $141,000 of tax, with no franking credit attached to soften it. He has also lost the offset benefit, because the money went back to the company and then came out again as something the ATO does not recognise as a repayment.

The ATO states the position plainly in its Division 7A myths debunked guidance: a repayment you make on a loan by a private company may not be taken into account if you reborrow similar or larger amounts from the same company after making the repayment.

There is a second limb as well. Section 109R(2)(b) catches the reverse sequence: where you borrowed from the company first and a reasonable person would conclude you obtained that loan in order to make the repayment. So funding the repayment out of a fresh company loan fails whichever order you do it in.

How Long Do You Have to Wait Before Borrowing Again?

There is no waiting period. Section 109R contains no time test at all. The question is not how many days have passed, it is what you intended when you made the repayment. A gap of a week, three months or a year buys you nothing on its own, and a genuine repayment followed by a genuinely new decision to borrow later is a new loan.

We say this plainly because owners are often told, incorrectly, that leaving the funds alone for some period makes the arrangement safe. It does not. Read the words of the provision: the test in section 109R(2)(a) is whether, when the payment was made, the entity intended to obtain a further loan of a similar or larger amount. Time is only ever circumstantial evidence of intention. It is not the test.

Which leads to the uncomfortable arithmetic sitting underneath the whole strategy. To repay the loan genuinely, Smith needs $300,000 of his own money from outside the company. If he has $300,000 sitting available, he did not need to borrow from the company in the first place. If he does not, the only place the repayment can come from is the company, and that is precisely what section 109R disregards.

That circularity is the honest heart of this. The interest-free window is real and valuable, but it is a one-off timing benefit that has to be genuinely closed out, not an annual carousel you can ride indefinitely.

What If You Put It on a Complying Loan Instead?

Then the economics invert, and most owners are surprised by it. The Division 7A benchmark interest rate for 2026-27 is 8.77%, and interest on a loan used to fund your own offset account is not deductible. You would be paying 8.77% to save 5.52%. On $300,000 that is $9,750 a year out of pocket before any franking recovery.

The ATO benchmark rate for the 2026-27 income year is 8.77%, set from the Reserve Bank’s indicator lending rate for bank variable housing loans published on 5 June 2026. Note that this is the indicator rate, not the discounted rate most borrowers actually pay on their mortgage, which is why the gap exists at all.

• Interest payable to the company: $300,000 at 8.77% = $26,310 a year.
• Mortgage interest saved: $300,000 at 5.52% = $16,560 a year.
• Smith’s net cash position: $9,750 a year worse off.
• Plus the principal. A seven-year unsecured loan requires real repayments every year, funded from after-tax money.

It is not quite the whole story, because the interest Smith pays is assessable to the company at 25% for a base rate entity and generates franking credits, so some of it comes back to the family group eventually through a franked dividend. But “eventually”, through a second layer of tax, is a very different proposition from the clean interest-free window. And it depends entirely on the money actually coming back out of the company.

Our view, stated plainly: a complying Division 7A loan is the right answer when you need the money and cannot repay it. It is rarely the right answer when the only purpose is to save mortgage interest. At current rates the benchmark works against you.

Why the Offset Saving Is Not Taxed

Money in an offset account does not earn interest. It reduces the balance your lender charges interest on, so you pay less. Because you never receive anything, there is no income to assess. That is the whole mechanism, and it is what makes an offset materially better than a savings account paying the same headline rate.

One important qualification. This is cleanly true for a loan on your main residence, where the interest was never deductible to begin with. On an investment property loan, the offset reduces a deductible expense, so the benefit to you is only the after-tax margin, not the full rate. Owners who move offset funds between a home loan and an investment loan without thinking this through frequently make themselves worse off.

What the Bendel Decision Did Not Change

Nothing in this scenario. The High Court’s decision in Commissioner of Taxation v Bendel [2026] HCA 18, decided 10 June 2026, concerned unpaid present entitlements owed by a trust to a corporate beneficiary. Money actually taken out of a trading company by a shareholder or an associate is still a straight section 109D loan, exactly as it always was.

We mention it because the decision generated a great deal of commentary, and some owners have taken from it a general impression that Division 7A has been weakened. It has not. In its Decision Impact Statement, the ATO confirms the decision is about a private company beneficiary that does nothing in respect of its entitlement. Smith drawing $300,000 out of the trading company is a different transaction entirely, and Bendel is silent on it.

How We Approach This With Clients

We start by asking what the money is actually for and when it can genuinely come back. If there is a real repayment source, the interest-free window is a legitimate and valuable timing benefit worth planning around. If there is not, the honest answer is usually a dividend or a properly structured wage, not a loan.

In our experience working with Melbourne business owners, the arrangements that fail are the ones nobody diarised. The loan gets drawn in July, everyone forgets, the return gets lodged, and the deemed dividend lands eighteen months later in an amended assessment. The arrangements that work are the ones where the repayment date sits in the calendar from day one, the source of the repayment is identified in advance, and the decision to borrow again, if it happens at all, is made and documented separately and for its own reasons.

If you already have a Division 7A loan running, the related reading is our guide to how Division 7A loan repayments work and the plain-English explainer on what Division 7A is. If the structure itself is the question, our piece on how to pay yourself from your company covers the alternatives. For the cash you already hold outside the company, see offset account versus savings account and the tax difference. You can also read more about our tax planning work.

Frequently Asked Questions

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