It usually starts with a phone call in May or June. Your accountant mentions a “Div 7A loan” on your company’s books, says it needs attention before lodgement, and suddenly you are hearing about benchmark rates, complying agreements and deemed dividends — about money you thought was simply yours. If that conversation has just happened to you, this article is the plain-English version of what your accountant was trying to say.

This explainer from Trinity Accounting Practice covers what a Div 7A loan actually is, why the money in your company is not “your money” yet, what the rules require, and what it costs you if you do nothing. If you want the advanced version — UPEs, bucket companies, restructures and remediation — read our deeper Division 7A survival guide after this one.

The core idea: your company’s money is not your money yet

If you run your business through a company, the law treats the company as a separate legal person. The cash in the company’s bank account belongs to the company — not to you, even if you own 100% of the shares. There are only a few proper ways to get money out:

Salary or directors’ fees — taxed as your income, with PAYG withholding and super.
Dividends — paid from profits, usually with franking credits attached for the company tax already paid.
A genuine loan — documented and repaid on commercial terms.
Repayment of money you previously lent the company.

The problem is what most owners actually do: transfer money out when they need it, and let the bookkeeper park it in a “shareholder loan” or “drawings” account to sort out later. Division 7A of the tax law exists precisely for that habit. Without it, every company owner could pull profits out tax-free as “loans” they never repay, skipping dividend tax entirely. So the ATO’s rule is blunt: an undocumented withdrawal is treated as a deemed dividend — an unfranked dividend, added to your personal taxable income, with no franking credits to soften it.

What a Div 7A loan actually is

A “Div 7A loan” is simply money your private company has provided to you (or your family or related entities) that has not been taxed as salary or paid as a proper dividend. Common ways it builds up:

Regular transfers from the company account to your personal account, beyond your salary;
The company paying private expenses — school fees, the home mortgage, a holiday, personal credit cards;
Buying a personal asset with company funds;
An accumulating “drawings” balance that nobody ever cleared.

None of this is illegal. The law just insists you pick a lane by the time the company’s tax return is lodged: pay it back, convert it to salary or a dividend, or put it on a complying loan agreement and repay it over time with interest.

The complying loan: the escape hatch

A complying Div 7A loan agreement keeps the deemed dividend away. The requirements are specific:

In writing and signed before the company’s lodgement day for the year the money came out;
Maximum term of 7 years (or up to 25 years if secured by a registered mortgage over real property);
Interest at or above the ATO benchmark rate — 8.37% for 2025–26, reset each year (see the ATO’s Division 7A pages);
Minimum yearly repayments of principal and interest every year until the loan is cleared.

Two catches worth knowing early. First, the interest you pay goes to your own company — but the company pays tax on it, and the interest is generally not deductible to you if the borrowed money funded private spending. Second, you cannot “repay” the loan on 30 June and redraw the same money on 1 July; the ATO can ignore round-robin repayments entirely.

What happens if you do nothing

If the loan is still sitting there at the company’s lodgement day with no agreement and no repayment, the entire balance is treated as an unfranked dividend in your personal tax return for the year the money came out. At the top marginal rate (47% including the Medicare levy), doing nothing about a $100,000 drawing can mean roughly $47,000 of personal tax — on money you already spent, with no franking credits, and very limited ability to fix it after the deadline passes. Miss a minimum yearly repayment in a later year and the shortfall can be deemed a dividend too.

Worked example — Sam’s $100,000

Sam runs a Sydney electrical contracting company. During 2025–26 he draws $100,000 across the year — renovations, a family trip, topping up the home loan. No salary was processed on those amounts and no dividend declared. Come tax time, Sam has two paths:

Path 1 — do nothing. The $100,000 becomes an unfranked deemed dividend. On top of his existing salary, most of it is taxed at 47%. Personal tax bill: roughly $45,000–$47,000, payable now.

Path 2 — complying 7-year loan, signed before lodgement day. Interest accrues at 8.37%. The minimum yearly repayment is approximately $19,400 a year for seven years. Sam funds it the way most owners do: the company declares a franked dividend each year, which is applied against the repayment. Sam pays top-up tax on the dividend at his marginal rate less the franking credit — meaningful, but spread over seven years, at a far lower effective cost than Path 1, and with the timing under his control. The paperwork took about an hour.

The difference between the two paths is not cleverness. It is one signed document and a calendar reminder.

Fixes that work before lodgement day

The deadline that matters is the company’s lodgement day — the earlier of when the tax return is actually lodged and when it is due. Before that day, you can still:

Repay the loan from genuinely external funds (savings, a bank refinance — not a redraw from the same company);
Declare a franked dividend and offset it against the loan balance — often the cleanest fix when the company has franking credits;
Process additional salary or bonus — though PAYG withholding and super make this the more expensive route at higher balances;
Sign a complying loan agreement and start the repayment schedule; or
Combine them — partial repayment, partial dividend, the remainder on a complying loan.

After lodgement day, the options collapse to remediation: voluntary disclosure and, where there was an honest mistake, asking the Commissioner for discretion. Both are slower, costlier and uncertain.

A Trinity insight from 22 years in practice

In 22 years we have almost never met a business owner who set out to breach Division 7A. The pattern is always the same: the business is profitable, the owner reasonably feels the money is theirs, the transfers are small and frequent, and nobody totals the drawings account until the financials are prepared — by which point the balance is a shock. Our fix is structural, not heroic: every company-structured client gets a shareholder-loan check in third-quarter review, while there is still time to plan salary, dividends and repayments calmly across the year instead of scrambling in June. Division 7A punishes surprise far more than it punishes borrowing.

What this means for you

If you transfer company money to yourself outside payroll: a Div 7A balance is probably building. Find out the number before June, not after.
If your accountant has mentioned a “shareholder loan” or “drawings” account: ask what the balance is and what the plan is for it.
If you already have a complying loan: diarise the minimum yearly repayment — 8.37% interest in 2025–26 — because a missed payment creates its own deemed dividend.
If the company pays any of your private expenses: those count too, not just cash transfers.
If you are planning a big personal purchase from company funds: talk to your accountant before the money moves, when every option is still open.
If you want the advanced detail: trusts, bucket companies and UPEs are covered in our Division 7A survival guide.

How Trinity can help

Trinity Accounting Practice runs shareholder-loan reviews for every company-structured client — quantifying the balance early, modelling the salary/dividend/loan mix, preparing complying loan agreements before lodgement day and tracking minimum yearly repayments so nothing slips. If you have just heard the words “Div 7A” for the first time, the best moment to deal with it is now, while the calendar is still on your side.

Book a shareholder loan review with the Trinity team →

General advice only. This article contains general information current as at June 2026 and does not constitute tax, financial or legal advice. It does not take into account your personal circumstances, objectives or needs. Before acting on any information in this article, you should consider its appropriateness to your situation and seek professional advice from Trinity Accounting Practice or another qualified adviser. Liability limited by a scheme approved under Professional Standards Legislation.