Division 7A: What Happens When You Take Money Out of Your Company (2026–27)
Division 7A is the set of tax rules for money taken out of a private company by its shareholders or their family. If you take company money and it isn't salary, a dividend or a properly documented loan, the ATO can treat it as an unfranked dividend and tax it in your hands at your marginal rate. For 2026–27, a complying loan has to charge at least 8.77% interest.
This matters if you run your business through a company, or have a company somewhere in your group, and money moves between it and you. It doesn't apply if you're a sole trader or a partnership of individuals with no company in the structure.
Does Division 7A apply to your business?
It probably does if any of these sound familiar:
You pay personal bills from the company account and sort it out at year end.
Your director loan account shows that you owe the company money.
The company has lent money to you, your spouse, your kids, your family trust or another entity you control.
You or your family use a company-owned asset privately, like a holiday house or a boat, without paying a market rate.
The company forgave a debt you owed it.
Your family trust distributes profit to a company, and the cash stays in the trust or gets used somewhere else.
Two things catch owners. The money doesn't have to be called a loan for the rules to apply. And the rules cover your "associates", which means relatives, your trusts and other entities you control, even when they don't own shares.
Money you take as salary with tax withheld, or as a properly declared dividend, sits outside Division 7A. Those are taxed in the ordinary way.
How much does a Division 7A mistake cost?
Sam owns a company turning over $3 million. He pays himself a $200,000 salary, so he's in the top tax bracket. During 2025–26 he took $150,000 out of the company to renovate his house. It was coded to his loan account. There's no loan agreement and nothing has been repaid.
Here are three ways that same $150,000 can end up.
1. Nothing is done. If the loan is still sitting there when the company's 2026 tax return is lodged, the $150,000 becomes an unfranked dividend in Sam's 2025–26 income. At 47% including Medicare levy, that's $70,500 in personal tax. He gets no franking credits, even though the company already paid 25% tax on the profit. The same money is taxed twice.
2. It's paid as a franked dividend. A franked dividend carries a credit for the tax the company has already paid. A $150,000 dividend franked at 25% is grossed up to $200,000. Tax at 47% is $94,000, less the $50,000 franking credit. Sam pays $44,000. That's $26,500 less than option 1.
3. It goes on a complying loan agreement. No tax up front. Sam signs a seven-year loan agreement before the return is lodged. His first minimum repayment is due by 30 June 2027: $29,574, made up of $13,155 interest and $16,419 principal. The company pays tax on the interest. Sam can't deduct it, because the money went into his home. And he has to fund every repayment from after-tax income.
The gap between the best and worst outcome here is paperwork and timing. The worst outcome is also the one that happens by default. (The deemed dividend is capped at the company's "distributable surplus", which is broadly its net assets less share capital. For a profitable company with retained earnings, that cap rarely helps.)
Not sure what's sitting in your director loan account? If money has moved between you and your company this year and nobody has talked to you about it, we can go through where you stand and what your options are.
What can you do if you've already taken the money?
You have until the company's "lodgment day" to fix it. That's the day the company tax return for the year of the loan is lodged or due, whichever comes first. Before then, you can:
Repay it. If the loan is paid back in full before lodgment day, there's no deemed dividend.
Put it on a complying loan agreement. It has to be in writing and signed before lodgment day. It has to charge at least the benchmark interest rate each year. The maximum term is seven years, or 25 years if the loan is secured by a registered mortgage over real property. A minimum repayment is due by 30 June every year after that.
Declare a dividend and offset it against the loan. If the company has franking credits, the dividend can be franked. This is option 2 in Sam's example.
Pay it as salary or a bonus instead. With tax withheld and super paid. This generally has to be decided during the year. It can't be backdated.
Ask the ATO for relief if it was an honest mistake. The Commissioner has a discretion to disregard a deemed dividend, or let it be franked, where the breach came from an honest mistake or oversight. Expect to be asked to fix the loan first.
Most owners end up with a mix: part repaid, part dividend, the rest on a loan agreement.
Where do growing businesses get caught?
Lodging the company return early
Lodgment day is the earlier of the due date and the day the return is actually lodged. Lodge in November to get it off the list, and November is your deadline. If the loan agreement isn't signed by then, it's too late.
Repaying on 29 June and re-borrowing on 2 July
If you repay a loan and then borrow a similar amount back, the ATO can ignore the repayment. Temporary repayments made to get past the deadline don't count.
Missing a minimum repayment
If a year's minimum repayment isn't made by 30 June, the shortfall becomes a deemed dividend for that year. The benchmark rate changes every year, so last year's repayment figure won't be right this year.
The company holiday house
Private use of a company asset counts as a payment, even if no money changes hands. Holiday homes, boats and cars held in the company for the family are the usual ones.
Lending through another entity
Routing the money through a second company or a trust on its way to you doesn't avoid the rules. The law looks through the entity in the middle.
Bucket companies after the Bendel decision
A bucket company is a company that receives profit distributions from your family trust. For years the ATO treated a distribution the trust hadn't actually paid across as a loan under Division 7A. On 10 June 2026 the High Court ruled 5–2 in Commissioner of Taxation v Bendel that an unpaid entitlement is not, by itself, a Division 7A loan. The ATO has said it will follow the decision.
That doesn't make bucket companies a free-for-all. Division 7A can still apply if the entitlement is converted into a loan, or if the trust lends or pays money to you while the company's entitlement is unpaid. Other tax rules can apply to the same arrangement, and the Government may yet change the law. Not yet law: the Budget also proposed a minimum tax on discretionary trust distributions. Don't unwind an existing arrangement without advice.
Is your structure still doing its job? If your company, trust and personal finances have become tangled as the business has grown, we can talk through how money should move between them and what to fix first.
Division 7A checklist before your 2026 company return is lodged
Get the 30 June 2026 loan account balance for every shareholder and family member.
Check for loans from the company to your trusts and other related entities.
For each balance, decide: repay, dividend or loan agreement.
Sign any loan agreements before the return is lodged.
For existing loans, work out this year's minimum repayment using 8.77% and diarise it for well before 30 June 2027.
List any company assets the family uses privately.
Set a regular salary or dividend for 2026–27, so drawings stop building up in the loan account.
When should you get advice?
Before you take a large amount out of the company. Fixing it afterwards costs more and leaves you fewer choices.
If you have a company with retained profits, a family trust in the mix and a loan account that moves every year, how you pay yourself is a decision to make during the year, while every option is still open. That's how we work with clients. We look at what you're drawing and how it's being treated as the year goes on, so there's nothing to repair after 30 June.
Key Division 7A dates and figures (2026–27)
Item | Figure |
Benchmark interest rate, 2026–27 | 8.77% |
Benchmark interest rate, 2025–26 | 8.37% |
Maximum loan term, unsecured | 7 years |
Maximum loan term, secured by registered mortgage over real property | 25 years |
Deadline to repay or sign a loan agreement | Lodgment day: the earlier of the due date and the actual lodgment date of the company return for the year the loan was made |
Minimum yearly repayment due | 30 June each year, starting the year after the loan was made |
Division 7A is one of several rules that apply to owners who work in their own company. See also our guides to fringe benefits tax and the personal services income (PSI) rules.
Division 7A FAQs
Is interest on a Division 7A loan tax deductible?
Only if you used the borrowed money to earn income, such as buying investments. If it paid for something private, like a renovation, the interest isn't deductible. The company pays tax on the interest it receives either way.
What are the penalties for getting Division 7A wrong?
The loan is taxed as an unfranked dividend at your marginal rate. If it's picked up later, your return is amended and the ATO adds the general interest charge, which is no longer tax deductible. Penalties of 25% to 75% of the tax shortfall can apply on top, depending on how the mistake happened.
Does Division 7A apply to small businesses?
Yes. It applies to every private company, whatever its size. There's no turnover threshold.
Can I borrow from my company to buy a house?
Yes, on a complying loan agreement. If the loan is secured by a registered mortgage over the property, the term can be up to 25 years. You still pay interest at the benchmark rate, and the repayments come out of your after-tax income.
When does a Division 7A loan agreement need to be signed?
Before the company's lodgment day for the year the loan was made. For money taken out in 2025–26, that's when the company's 2026 tax return is lodged or due, whichever comes first. If your accountant is preparing that return now, this is the time to ask.
Is a Division 7A loan better than paying a dividend?
It depends on your tax rate, the company's franking credits and what the money is for. A loan defers the tax, but you pay 8.77% interest and have to repay the principal from after-tax income. A franked dividend settles the tax now. Many owners use both.
Does Division 7A apply to trusts?
It can, when there's a company in the picture. A loan from your company to your family trust is covered. So are some loans and payments a trust makes to you while it owes an unpaid distribution to a company.
This is general information only and doesn't take into account your personal circumstances.
