Division 7A loan repayments must meet a minimum yearly repayment each year, calculated using the ATO benchmark interest rate (8.37% for 2025-26), the loan balance and the remaining loan term. The repayment must be genuinely made by 30 June, or the shortfall can be treated as an unfranked deemed dividend in the borrower’s hands. There is a related trap worth knowing about if you intend to repay and then draw the funds out again, which we cover in borrowing from your company to fund your offset account.
If your private company has lent money to you, a family member, or a connected entity, you have Division 7A loan repayment obligations that need to be met every single year by 30 June — without exception. Miss them, and the ATO treats the shortfall as a new unfranked dividend, taxable at your full marginal rate.
The repayment rules catch many business owners off guard. It is not enough to have a written Division 7A loan agreement in place; you need to make the correct minimum repayment each year, ensure it covers both principal and interest, and do it before the deadline. This post walks through exactly how Division 7A loan repayments work, how to calculate the minimum amount, and what happens when things go wrong.
If you are new to Division 7A, start with our comprehensive guide first: Division 7A Explained: The Complete Guide for Australian Business Owners. This post focuses specifically on the repayment mechanics in detail.
What Constitutes a Division 7A Loan?
A Division 7A loan arises when a private company provides a financial accommodation to a shareholder or their associate. This includes:
- A formal loan of money from the company to the shareholder
- Payments made by the company on behalf of the shareholder (e.g., personal expenses paid from the company account)
- Credit extended by the company to the shareholder — for example, allowing goods or services to be taken without payment
- An amount owed by a trust to a private company that the parties have actively dealt with so as to create a loan, for example by converting an unpaid present entitlement into a section 109N complying loan agreement
Any of these arrangements that is not fully repaid before the company’s tax return lodgement date for that income year must be placed on a complying loan agreement — otherwise the amount is treated as a deemed dividend.
One important qualification, as at September 2026. An unpaid present entitlement (UPE) that a corporate beneficiary simply leaves outstanding is not on this list. In Commissioner of Taxation v Bendel [2026] HCA 18, decided 10 June 2026, the High Court held that providing financial accommodation requires some bilateral activity, a transfer or grant of value, and that a company which does nothing about its entitlement provides none. A bare UPE is therefore not a section 109D loan. The ATO accepted this in its Bendel Decision Impact Statement, published 26 June 2026. A UPE that was already converted into a complying loan is a different matter: it remains a loan, and the repayment rules set out below apply to it in full.
For the loan to be a complying Division 7A loan, the written agreement must be in place before the earlier of: the lodgement date of the company’s income tax return, or the due date for lodgement. This timing is non-negotiable. A loan agreement signed after the return is lodged provides no protection for that income year.
Loan Terms: 7 Years vs 25 Years
Every Division 7A complying loan must have a defined maximum term. There are two options:
Unsecured Loans — Maximum 7 Years
An unsecured Division 7A loan can run for a maximum of 7 years from the end of the income year in which the loan was made. For example, a loan made in the 2025–26 income year (ending 30 June 2026) has a maximum term through to 30 June 2033.
A 7-year term means higher minimum annual repayments because you are repaying the full principal and interest over a shorter period. For a $100,000 loan at the 2025–26 benchmark rate of 8.37%, the minimum repayment in Year 1 is approximately $19,022. By Year 7, the loan is fully repaid.
Loans Secured by Real Property — Maximum 25 Years
If the loan is secured by a registered mortgage over real property, the maximum term extends to 25 years. There are important conditions:
- The security must be a registered mortgage over real property (not just a charge over other assets)
- The loan-to-value ratio (LVR) must not exceed 100% at the time the security is granted
- The LVR condition is assessed at the time the security is provided, not at later dates
A 25-year term significantly reduces the minimum annual repayment — for the same $100,000 loan, the minimum repayment drops to approximately $9,215 per year. This makes the secured 25-year loan an attractive option for business owners who need more manageable annual cash outflows. However, it requires real property as security and a properly registered mortgage, which adds legal complexity and cost.
One important point: if the security arrangement is not correctly documented or the mortgage is not registered, the ATO will treat the loan as unsecured — meaning 7-year terms and higher repayments. Any shortfall from what you should have been repaying becomes a deemed dividend.
How the Minimum Annual Repayment Works
Every year that a Division 7A complying loan is outstanding, a minimum annual repayment (MAR) must be made before 30 June. The MAR covers both interest accrued during the year and a portion of principal.
The ATO publishes a formula for calculating the minimum repayment, based on the loan balance, the benchmark interest rate applicable to the loan, and the number of years remaining in the term. The ATO also provides an online Division 7A Calculator and Decision Tool that computes this for you. For a quick estimate, you can also use Pinnacle’s Division 7A loan calculator.
The Formula
The minimum annual repayment is calculated using a standard loan annuity formula:
MAR = Loan Balance × [r ÷ (1 − (1 + r)^(−n))]
Where:
- r = the benchmark interest rate applicable to the loan (as a decimal)
- n = the number of years remaining on the loan at the start of the income year
This is effectively a constant repayment mortgage formula. The repayment amount stays roughly the same each year, but the proportion going to interest decreases as the principal reduces.
Worked Example: Minimum Repayment Calculation
Let’s say a director, Michelle, took a $150,000 unsecured loan from her private company in the 2025–26 income year (ending 30 June 2026). The applicable benchmark rate is 8.37%, and the maximum term is 7 years.
| Year | Opening Balance | Interest (8.37%) | Minimum Repayment | Closing Balance |
|---|---|---|---|---|
| 1 (2026–27) | $150,000 | $12,555 | $28,533 | $134,022 |
| 2 | $134,022 | $11,217 | $28,533 | $116,706 |
| 3 | $116,706 | $9,768 | $28,533 | $97,941 |
| 4 | $97,941 | $8,198 | $28,533 | $77,606 |
| 5 | $77,606 | $6,498 | $28,533 | $55,571 |
| 6 | $55,571 | $4,651 | $28,533 | $31,689 |
| 7 | $31,689 | $2,652 | $34,341 | $0 |
Total repaid over 7 years: approximately $204,540, of which $55,539 is interest. Michelle’s annual cash outflow to remain compliant is around $28,500 per year. This is manageable — but only if it is tracked and paid on time every year.
What Happens If You Miss a Repayment?
Missing a Division 7A minimum annual repayment is one of the most common and costly mistakes business owners make. The consequences are immediate and unavoidable:
- The shortfall becomes a deemed dividend. If your minimum repayment is $28,533 and you only pay $15,000, the $13,533 shortfall is treated as an unfranked deemed dividend in that income year.
- It is taxed at your marginal rate. At 47% (top marginal rate including Medicare levy), that $13,533 shortfall creates a $6,360 personal tax liability — on top of any other tax you are paying.
- It does not reduce the loan balance. The shortfall is assessed as a dividend but the loan balance does not reduce by that amount. The underlying loan obligation remains.
- The ATO does not readily waive the deemed dividend. There is very limited discretion available. Once the year ends with a repayment shortfall, the tax outcome is generally locked in.
The 30 June deadline is absolute. Interest and principal must be genuinely paid — not merely journalled or accrued in your accounts. A common and legitimate approach is to have the company pay a franked dividend to you, which you then apply as a repayment against the Division 7A loan. This is tax-effective because the franking credits offset some of the income tax on the dividend, effectively reducing the real cost of making the repayment. But it requires planning ahead of 30 June, not a last-minute scramble.
Is your Division 7A repayment amount correct for this year?
Many business owners do not know their minimum repayment obligation until it is too late. At Pinnacle, we track Division 7A repayment schedules for Melbourne clients proactively throughout the year. Book a consultation with Mina to review your position.
Book a Consultation →The ATO Benchmark Rate for 2025–26
The minimum interest rate that must be charged on a Division 7A complying loan is the ATO benchmark interest rate applicable to the income year in which the loan was made.
- 2025–26 income year: 8.37% per annum
- 2026–27 income year (current): 8.77% per annum
- 2024–25 income year: 8.77% per annum
The rate is fixed at the time the loan is made and stays for the life of that loan — regardless of what the benchmark rate is in subsequent years. So if you took out a 7-year loan in 2025–26 at 8.37%, you use 8.37% to calculate every repayment until year 7, even as the benchmark rate changes.
For a full explanation of how the benchmark rate is determined, historical rate data, and what happens if you charge below the rate, see our reference post: Division 7A Interest Rate 2025–26 — What Business Owners Need to Know.
How to Document a Complying Division 7A Loan Agreement
The written loan agreement is the foundation of Division 7A compliance. Without it — or if it is executed after the deadline — no amount of genuine repayment intention protects you from the deemed dividend.
A complying Division 7A loan agreement must include:
- The parties: Identify the lender (the company), the borrower (the shareholder or associate), and their relationship to the company
- The loan amount: State the principal amount being lent
- The interest rate: Specify that interest accrues at at least the ATO benchmark rate applicable to the income year the loan was made
- The loan term: State the maximum term — 7 years (unsecured) or 25 years (secured by registered mortgage over real property)
- Repayment obligations: Note that minimum annual repayments are required and must be paid before 30 June each year
- Signatures: The agreement must be signed by both parties (or their authorised representatives)
Do not attempt to prepare a Division 7A loan agreement from a generic template without professional review. The ATO scrutinises these documents, and an agreement that fails to meet the technical requirements provides no protection. Have a registered tax adviser or solicitor prepare or review the agreement.
Record-keeping matters too. In an ATO review or audit, you will need to produce: the signed agreement, bank records showing each repayment was made in cash (not just journalled), and a running loan balance reconciliation. Keep these records for at least 5 years from the end of the income year.
Watch: How to Manage Director Loans Properly
Mina walks through the key rules for managing director loans and Division 7A repayments in this BusiHealth video:
Frequently Asked Questions
What is the minimum annual repayment for a Division 7A loan?
The minimum annual repayment (MAR) is calculated using the ATO’s loan annuity formula, based on the loan balance, the benchmark interest rate applicable to that loan, and the remaining loan term. Pinnacle’s Division 7A loan calculator can give you a quick estimate, and the ATO’s Division 7A Calculator computes this in detail. For example, a $150,000 unsecured 7-year loan at 8.37% requires a minimum first-year repayment of approximately $28,533.
When does the Division 7A minimum repayment need to be made?
The minimum annual repayment must be made before 30 June of each income year. It must be a genuine cash payment — not a paper journal entry. If your company’s lodgement date for its tax return falls before 30 June, some advisers structure repayments around lodgement timing, but the safest approach is to target repayment well before 30 June each year.
What happens if I only partially make the minimum repayment?
The shortfall — the difference between the required minimum repayment and what was actually paid — is treated as an unfranked deemed dividend in the income year the repayment was due. So if the minimum was $28,533 and you only paid $20,000, the $8,533 shortfall is assessed as a dividend at your marginal tax rate. The loan balance on the books also does not reduce by the shortfall amount.
Do I still have to service a loan that started life as an unpaid present entitlement?
Yes. Commissioner of Taxation v Bendel [2026] HCA 18, decided 10 June 2026, held that a bare unpaid present entitlement is not a Division 7A loan. It did not unwind entitlements that had already been converted into complying section 109N loans. Where that conversion has happened, the arrangement is a loan as a matter of fact and the minimum yearly repayments continue to apply. The ATO confirms this in its Decision Impact Statement of 26 June 2026.
Can I use a company dividend to make the Division 7A repayment?
Yes — this is a legitimate and commonly used strategy. The company pays a franked dividend to the shareholder, and the shareholder applies those funds as the Division 7A repayment. The franking credits on the dividend can offset some of the income tax, effectively reducing the real cost of the repayment. This needs to be planned before 30 June and documented correctly by your accountant.
What is the maximum term for a Division 7A loan?
Unsecured Division 7A loans have a maximum term of 7 years. Loans secured by a registered mortgage over real property (with LVR not exceeding 100% at the time the security is granted) have a maximum term of 25 years. The longer term significantly reduces annual minimum repayments but requires proper legal documentation of the security arrangement.
General Advice Warning: The information provided in this article is general in nature and does not constitute personal financial, tax or legal advice. It has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on this information, please consider its appropriateness to your circumstances and seek independent professional advice from a qualified accountant or tax advisor.
Division 7A loan repayments are not optional, and they are not something to calculate on the back of an envelope the night before 30 June. If you have a director’s loan account or a company loan to an associate, make sure your accountant has the repayment schedule locked in and monitored throughout the year. Contact Pinnacle Accounting & Advisory to get your Division 7A position reviewed before the next deadline.
Frequently Asked Questions
How do Division 7A loan repayments work?
Each year you must make at least the minimum yearly repayment on a complying Division 7A loan, made up of interest at the benchmark rate plus principal. The repayment is due by 30 June, and failing to meet it can trigger a deemed dividend on the shortfall, taxed in the borrower’s hands.
What is the minimum yearly repayment?
The minimum yearly repayment is calculated using the benchmark interest rate (8.37% for 2025-26), the opening loan balance and the number of years left on the loan term. The ATO provides a calculator, and the amount must be genuinely paid, not just recorded as a journal entry.
Can I use a dividend to make the repayment?
Yes. A common approach is for the company to declare a franked dividend to the shareholder, who then applies it against the minimum yearly repayment. This must be properly documented with dividend statements and loan records for the ATO to accept it as a genuine repayment.
What happens if I miss a Division 7A repayment?
If the minimum yearly repayment is not met, the shortfall is treated as an unfranked deemed dividend and included in the borrower’s assessable income. In limited circumstances the ATO may grant relief, but it is far safer and cheaper to meet the repayment on time each year.
Does a loan that began as an unpaid present entitlement still need repayments?
Yes. Commissioner of Taxation v Bendel [2026] HCA 18, decided 10 June 2026, held that an unpaid present entitlement left outstanding is not a Division 7A loan, but it did not unwind entitlements already converted into complying section 109N loans. Those remain loans as a matter of fact, and the minimum yearly repayments continue to apply.
This article contains general advice only and does not take into account your specific circumstances. Please speak with a qualified accountant or tax adviser before making financial decisions.
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