Division 7A Complying Loan Agreement
Time-sensitive
When a private company makes a loan to a shareholder or associate, the parties must execute a written complying loan agreement before the company's tax lodgment day to avoid the loan being treated as an unfranked deemed dividend under Division 7A of the ITAA 1936.
Issuing authority
Australian Taxation Office
Official source
ato.gov.auCost
Free (ATO process); legal fees apply for drafting the loan agreement
Deadline
Loan agreement must be executed before the company's lodgment day for the income year the loan was made; minimum repayments due by 30 June each year
How to apply
- Identify whether a payment, loan, or debt forgiveness from the private company to a shareholder or associate triggers Division 7A — use the ATO's Division 7A Calculator and Decision Tool at ato.gov.au/calculators-and-tools/division-7a-calculator-and-decision-tool.
- Execute a written loan agreement before the company's lodgment day for the income year in which the loan was made — there is no prescribed ATO form; a legally drafted document (ideally by a solicitor) is required.
- Ensure the agreement sets an interest rate at or above the Division 7A benchmark interest rate for each year (set annually by the ATO — 8.27% for 2024–25).
- Set the loan term: maximum 7 years for an unsecured loan, or 25 years if the loan is fully secured by a registered mortgage over real property.
- Make minimum yearly repayments by 30 June each year — calculate using the ATO's Division 7A calculator; shortfalls in any year are treated as a deemed unfranked dividend in that year.
- Report the loan and any minimum repayment shortfalls in the company's annual tax return (the company's distributable surplus must also be calculated).
- The shareholder or associate includes any deemed dividend amounts as assessable income in their individual or entity tax return.
- Keep the signed loan agreement, repayment records, and interest calculations for at least 5 years after the loan is fully repaid.
Related topics
Division 7Acomplying loan agreementdeemed dividend private companyDiv 7A loan shareholderprivate company loan agreementbenchmark interest rate Division 7ADivision 7A calculatorshareholder loan taxDivision 7A minimum repaymentprivate company deemed dividend unfrankedDivision 7A distributable surplusITAA 1936 Schedule 2Fcompany loan to director taxATO Division 7A compliance
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