Div 7A loans: the question we get every quarter

Technically reviewed 8 October 2026 · General information only, not personal advice. Read our disclaimer.

We get a version of the same question every three months, sometimes more often. It usually arrives as a text or a short email and it usually starts with one of three lines.

“I took some money out of the company for [house deposit / boat / school fees / personal credit card]. Is that going to be a problem?”

“My old accountant said something about Division 7A, what does that actually mean?”

“My trust distributed to my bucket company but the cash never moved. Are we okay?”

The answer to all three is: maybe, depending on what you do next, and there’s a deadline.

This is the plain-English version of the conversation, in the order it usually goes.

What Division 7A actually is

Division 7A is a part of the Income Tax Assessment Act 1936 that stops a private company being used as the personal bank account of its shareholders or their associates. Without it, you could pay 25% corporate tax on company profit, then quietly draw it out to fund your lifestyle and never pay tax at your individual marginal rate. Division 7A closes that gap by treating the drawing as a deemed dividend, fully taxable in your hands at your marginal rate, usually unfranked, sometimes catastrophic.

That’s the headline. The detail is that there are three ways the Division gets triggered: a payment from the company to a shareholder or associate, a loan, or the forgiveness of an existing debt. Most of what we see in practice is the loan version, money taken out of the company that isn’t a wage, isn’t a properly declared dividend, and isn’t sitting against a complying agreement.

The question we get most often

It’s almost always: “Can I just pay it back?”

Yes, sometimes, if the timing’s right.

If you took the money out during the financial year, and you put the same amount back into the company before the company’s lodgement day for that year’s tax return, then for Division 7A purposes the loan is treated as repaid and the deemed dividend doesn’t arise. There are two dates to keep straight. For a new shareholder loan, the company’s lodgement day is the earlier of the return’s due date and the day it is actually lodged. Sorting the loan out after the return goes in can be too late, even if the due date is still ahead. An existing complying loan has a separate annual repayment obligation, normally due by 30 June for a company with a June year end. Signing the agreement is the start of that discipline, not the end.

The trap people fall into: they pay it back, then draw a similar or larger amount out again. Section 109R disregards a repayment where, at the time it was made, there was an arrangement or intention to borrow the money back from the company. It is a question of fact, not of dates: a round trip through the company’s bank account does not cure Division 7A just because it happened before year end. The ATO’s current view on how s 109R applies, particularly to more complex repayment patterns involving interposed entities, sits in TD 2025/5.

A repayment is not much help if the company is funding it, or you make it intending to borrow a similar amount straight back. We check the whole arrangement, not just whether two transfers appear in the bank account. Later borrowing is not automatically a problem; the question is what was intended when the repayment was made.

If you can’t pay it back in cash before lodgement day, the next option is to put the loan on a complying loan agreement under section 109N of ITAA 1936. The agreement has to be in writing and in place before the company’s lodgement day (we have it signed and dated before then, every time, because an unsigned document is an argument waiting to happen), and the interest rate has to be at least the Division 7A benchmark rate under s 109N(2), which the ATO republishes each July from the RBA’s variable housing rate. For 2026-27 it is 8.77%, up from 8.37% the year before; check the ATO’s current figure for the year you are documenting rather than relying on a number in an article. Once it’s on a complying loan agreement, you have seven years (for unsecured loans) to repay it, with minimum yearly repayments based on the benchmark rate. As long as you make the minimum yearly repayment every year for the life of the loan, the deemed dividend doesn’t arise.

The trap that catches half of you

Half of the Division 7A problems we see come from people who set up a complying loan agreement, made the first year’s minimum repayment, and then quietly stopped.

Section 109E doesn’t forgive a missed minimum repayment. If the minimum yearly repayment is missed, the shortfall becomes a deemed dividend that year, taxed in your hands at your marginal rate. Worse, the loan stays on foot, so the same problem can repeat the next year.

So if you’ve got a Division 7A complying loan in place and you’ve drifted out of the discipline of making the annual repayment, you’re not safe. You’re behind. And the fix is harder than the original setup, because you’ve got prior-year shortfalls to deal with.

The discipline isn’t optional. It’s the whole structure.

The third question, the trust-to-company one

This is the question that’s moved most in the last 18 months.

If a discretionary trust distributed profit to a corporate beneficiary on paper, but the cash didn’t move, that’s an unpaid present entitlement (UPE). The ATO’s longstanding position, set out in TD 2022/11, is that an unpaid UPE is effectively a loan from the company back to the trust under Division 7A. In Commissioner of Taxation v Bendel [2025] FCAFC 15, the Full Federal Court rejected that view and held a UPE is not a “loan” under s 109D(3). The Commissioner appealed, and on 10 June 2026 the High Court dismissed the appeal (Commissioner of Taxation v Bendel [2026] HCA 18). The majority held that a corporate beneficiary which simply does not call on the trustee to pay its entitlement has not provided financial accommodation to the trust and has not made it a loan of money; on the deed in that case, the unpaid entitlement was held on a separate trust for the company. TD 2022/11 cannot stand with that decision. The legislative reaction has already started: in July 2026 the government said it would legislate the measure first announced in the 2018-19 Budget to bring unpaid entitlements within Division 7A, and it has since confirmed that will proceed separately from the draft minimum tax on discretionary trusts. Nothing on it has been released in draft yet, so today the law is as the High Court stated it, but the direction of travel is clear and it is why we have not changed our own practice. Note also that Bendel turned on its facts, including deed terms that held the entitlement on a separate trust; not every unpaid entitlement is identical.

And independently of Bendel, Subdivision EA of Division 7A (ss 109XA–109XD ITAA 1936) catches a related trap, where a trust with an unpaid entitlement to a private company makes payments, loans, or forgives debts to the company’s shareholders or associates, those trust transactions can themselves be treated as deemed dividends from the company. Subdivision EA does not turn on whether a UPE is a “loan,” so Bendel does not affect it.

The technical answer has shifted in the taxpayer’s favour. The practical answer hasn’t.

If you’re using a corporate beneficiary, our firm policy is that the cash follows the paper, or the entitlement is deliberately converted into a loan documented on section 109N terms. To be clear about what that is: after Bendel, the law does not require it, because a mere unpaid entitlement is not a Division 7A loan. We require it of ourselves because the alternative is too often a company that owns a paper claim against a trust that has used the money elsewhere. The reason isn’t only Division 7A. It’s also Section 100A (reimbursement agreements), the government’s stated intention to legislate the ATO’s former position, and the broader question of whether the structure does what it claims to do. A corporate beneficiary that holds an unpaid entitlement for years, with nothing to show for it, isn’t actually retaining profit at the corporate rate. That’s not a structure. That’s a problem waiting for a rule change.

Taking company money is the start of the question. What happens next can change the tax result.

What to do before lodgement day

If you’ve taken money out of your company this year, or your trust distributed to a corporate beneficiary on paper, here’s the order of operations:

1. Work out what’s actually moved. Loans, distributions, payments, the lot. Get the position clear. 2. Decide what’s getting paid back in cash. The cleanest fix is the cash one. 3. For any actual loan that isn’t getting paid back in cash: put a section 109N complying loan agreement in place before lodgement day. (A payment or a forgiven debt is dealt with differently, and a mere unpaid entitlement is a deliberate decision rather than an automatic loan; we talk those through separately.) Get the agreement drafted properly, signed, and dated before the deadline. 4. Calendar the minimum yearly repayment. Diary it. Recurring, every year, for the life of the loan.

The deadline that matters is the lodgement day of the company’s tax return for the year the drawing happened. Miss it and, outside the Commissioner’s discretion for honest mistakes and inadvertent omissions under section 109RB, which is applied for and not assumed, you’re not patching, you’re paying.

If you’re not sure where you stand, ring us. The Division 7A conversation is one we have every quarter, and the cost of getting ahead of it is always less than the cost of cleaning up after it.

Raise higher.