Division 7A Loan Calculator
Minimum yearly repayment, deemed dividends, and complying loan agreements.
Loan details
Allows 25-year term.
Complying loan
Minimum yearly repayment of $19715.97 was met. The loan remains complying.
- Benchmark rate
- 8.77%
- Minimum yearly repayment
- $19,716
- Repayments made
- $20,000
- Remaining balance
- $88,770
- Next year MYR
- $19,653
Division 7A treats certain loans from private companies to shareholders or associates as unfranked dividends. The result is taxable income with no franking credits — the worst possible tax outcome. A complying loan agreement with minimum yearly repayments is the standard way to avoid this.
What makes a loan complying
A complying Division 7A loan must be in writing, charge interest at least at the ATO benchmark rate, and have a maximum term of 7 years if unsecured or 25 years if secured over real property. The agreement must be in place before the company's lodgement day.
The benchmark rate is set annually by the ATO and is broadly based on the RBA indicator rate. Using a lower rate invalidates the agreement.
Minimum yearly repayment
The minimum yearly repayment is calculated using a standard amortisation formula based on the loan balance, the benchmark rate, and the remaining term. It is not arbitrary — it is the amount that would pay off the loan over the term at the benchmark rate.
If you do not make the MYR, the shortfall is treated as a deemed dividend in that year. The company has no franking credits to attach, so the shareholder pays full tax on the amount.
Common traps in practice structures
Medical practices often use a service company or family trust structure. When the company lends money to the practitioner or their family to buy a house or car, Division 7A can apply even if the loan feels informal.
The best defence is a written loan agreement prepared before the lodgement deadline, with repayments tracked and documented. Relying on verbal agreements or undocumented offsets is high risk.
Frequently asked questions
What makes a Division 7A loan complying?
A written agreement in place before the company's lodgement day, interest at least at the ATO benchmark rate, a maximum term of 7 years unsecured or 25 years secured over real property, and the minimum yearly repayment met each year.
What is the benchmark interest rate for 2026-27?
The ATO set the Division 7A benchmark rate for the 2026-27 income year at 8.77%. Using a lower rate invalidates the complying loan agreement and can trigger a deemed dividend.
What happens if I miss the minimum yearly repayment?
The shortfall is treated as an unfranked deemed dividend in that year. The company has no franking credits to attach, so the shareholder pays full tax on the amount — the worst possible outcome.
Related calculators
This calculator provides general information only and is not tax advice. It does not account for your individual circumstances. Confirm figures against the relevant legislation or with a registered tax agent before relying on them for a lodgement.
Reviewed by eHealth Systems Pty Ltd