Business tax
Money out of your own company, and what the deemed dividend would cost
A Division 7A loan is complying or it is a dividend. There is no middle. The minimum yearly repayment is a specific number on a specific date, and missing it converts a loan into assessable income at up to 47%.
A loan from your own company is complying, or it is income.
Money taken out of a private company by a shareholder or an associate is a deemed dividend under Division 7A unless it is put on a complying loan agreement and the minimum yearly repayment is actually made, in cash, by the lodgement day. The benchmark interest rate for 2026-27 is 8.77%, up from 8.37% the year before — and because the minimum repayment is calculated on that rate, it moves every year whether or not anything about the loan does.
On a $200,000 unsecured loan over the 7 years maximum term, the minimum yearly repayment is $39,432. Miss it and the shortfall is a deemed dividend: assessable income, unfrankable in the ordinary case, taxed at your marginal rate up to 47%, and it does not go away by being repaid later.
The loan itself is not the problem. The company has already paid tax on the profit at 25% or 30%. The problem is the arithmetic of getting it out — and the fact that the number changes annually.
What it works out
- The minimum yearly repayment, at the 2026-27 benchmark rate of 8.77%, on your loan, its term and its remaining balance.
- Unsecured over 7 years against secured over 25 years, with the 110% security cover requirement applied — the difference in cash flow between the two is substantial and the security is often already there.
- The deemed dividend, priced. Not "you would have a problem", but the actual assessable amount, the tax on it, and the shortfall interest at 7.43% or general interest at 11.43% where it applies.
- The penalty range. Administrative penalties run 25% to 75% of the shortfall depending on how the position was arrived at.
- Every lawful option, ranked. Repay, refinance onto a complying agreement, declare a franked dividend, pay a salary, or leave it and wear the deemed dividend — all four priced on what they leave the owner after tax.
What the full report adds
- The whole loan term, year by year. The repayment moves with the benchmark rate, so a plan built on this year's figure alone is a plan for one year.
- Franked dividend against salary against repayment, compared on the same measure, with the company's own tax position and franking account taken into account.
- Unpaid present entitlements. The interaction between a trust's UPE to a corporate beneficiary and Division 7A, which has moved considerably and is where a lot of structures are exposed.
- Every loan and every entity, as many times as you like. One payment, no expiry.
What it will not do
It is not tax advice. Whether an amount is a loan, a payment, a debt forgiveness or something else on your facts is a characterisation question, and Division 7A has exceptions and carve-outs that turn on documents rather than on arithmetic. A registered tax agent is the person who signs off on the position. What this does is tell you what each position costs — which, at typical fees of $200 to $350 an hour, is the part worth arriving with.
Everything here runs on the rates and rules current from 1 July 2026, for the 2026-27 income year.
What people ask before they run it
What is the minimum yearly repayment on a Division 7A loan?
It comes from the formula in section 109E(6) of the Income Tax Assessment Act 1936: the balance still owing at the end of last year, multiplied by this year's benchmark interest rate, divided by one minus one over one plus that rate raised to the number of years left in the term. For 2026-27 the benchmark rate is 8.77%. On a $200,000 loan with seven years to run that is about $39,432 a year. Miss any part of it and the shortfall becomes a deemed dividend.
What is the Division 7A benchmark interest rate for 2026-27?
8.77%, up from 8.37% in 2025-26. The ATO sets it from the Reserve Bank's standard variable housing loan rate for owner-occupiers, last published before the income year starts. A complying loan has to charge at least that rate for every year after the year the loan was made.
What does a deemed dividend actually cost me?
It is added to your taxable income and taxed at your marginal rate, and because it is unfrankable under section 202-45 of the Income Tax Assessment Act 1997 there is no franking credit to put against it. At the top rate that is 47% of the amount with nothing back. Shortfall interest charge at 7.43% a year can be added on the amended assessment, and an administrative penalty of 25% to 75% of the shortfall on top of that. The loan itself still has to be repaid.
Is an unpaid trust distribution to a company a Division 7A loan?
No. On 10 June 2026 the High Court decided in Commissioner of Taxation v Bendel that an unpaid present entitlement owed by a trust to a corporate beneficiary is not, by itself, a loan for section 109D. The ATO accepted that in its decision impact statement of 26 June 2026 and is withdrawing the determination that said otherwise. Other rules still apply, including Subdivision EA and section 100A.
Do you give tax advice?
No. This is an information service: it applies the published Division 7A rules to the figures you enter and shows what they produce, with every working visible. It ranks options on one stated arithmetic measure and does not recommend one. Whether the cash exists, whether the company has a distributable surplus, and what your own agreements say are not in that measure.
Everything on Division 7A Calculator
The estimate is free, and it is a real one.
Works out the minimum yearly repayment on a complying Division 7A loan at the 2026-27 benchmark interest rate of 8.77%, prices the deemed dividend if that repayment is missed, and ranks every lawful way of dealing with money taken out of a private company on what it leaves the owner.
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