Division 7A Calculator

What is Division 7A and who does it affect?

Division 7A of the ITAA 1936 prevents private companies from making tax-free distributions to shareholders or their associates disguised as loans, payments, or debt forgiveness. If a private company lends money to a shareholder (or a related party, such as a spouse, adult child, or related trust) and the loan does not comply with strict written agreement requirements, the ATO treats the full outstanding amount as an unfranked dividend — taxed at the shareholder's marginal rate, with no franking credits to offset it. This can produce a significant unexpected tax liability, particularly where the "loan" was never intended to be repaid.

To avoid Division 7A treatment, the loan must be documented in a written agreement signed before the company's tax return lodgement date for the year the loan was made, must charge interest at least at the ATO's benchmark rate (8.27% for FY2025-26), and must be fully repaid within 7 years for unsecured loans or 25 years for loans secured over real property. Each year, a minimum yearly repayment (MYR) must be made — this calculator shows the MYR and the full amortisation schedule. Missing a minimum repayment in any year causes the shortfall to be deemed an unfranked dividend in that year.

Division 7A also applies to payments made to shareholders (not just loans), and to situations where a trust owes money to a company — these interposed entity rules are more complex. The ATO actively reviews private company accounts for Division 7A exposure, particularly on audit. If you have an existing loan that may not comply, a registered tax agent can assess whether a repayment or refinancing arrangement is possible before the next lodgement date.

How to use this Division 7A calculator

1. Enter the original loan amount and the date the loan was made (or the date of the written agreement).
2. Select the loan term — 7 years for an unsecured loan, or 25 years for a loan secured against real property.
3. The benchmark interest rate (8.27% for FY2025-26) is applied automatically — this is the ATO's published rate for complying Division 7A loans.
4. Review the minimum yearly repayment and the amortisation schedule — ensure the repayment is made before 30 June each year and recorded correctly in the company's accounts.

What is the benchmark interest rate and where does it come from?

The ATO sets the Division 7A benchmark interest rate annually based on the Reserve Bank of Australia's indicator lending rate for small businesses. For FY2025-26 the rate is 8.27%. The rate that applies to a loan is set in the first year the loan is made and generally remains fixed for the life of the loan — it is not recalculated each year as rates change. Using a rate below the benchmark means the loan does not comply with Division 7A, and the deemed dividend rules apply.

What if we missed a minimum yearly repayment?

If the minimum yearly repayment is not made before 30 June in the relevant year, the shortfall amount is treated as an unfranked dividend in the shareholder's hands in that income year. The deemed dividend is included in their assessable income and taxed at their marginal rate — with no franking credits. The loan itself may still continue, but each year a repayment is missed creates a separate deemed dividend event. Catching up the missed payment in the following year does not undo the dividend deemed to have arisen.

Does Division 7A apply to trusts?

Yes, Division 7A can apply where a trust owes money to a private company (for example, a trust that is a corporate trustee or a related entity). If a company is a beneficiary of a trust and the trustee does not pay the company's entitlement within a certain period, the unpaid present entitlement (UPE) may be treated as a loan subject to Division 7A. These interposed entity provisions are complex and the rules changed significantly from 1 July 2022 — specialist tax advice is strongly recommended for any trust-company structures.

Rates and thresholds on this page (including the Division 7A benchmark interest rate) are based on ATO published figures and are updated annually. Always confirm the current rate at ato.gov.au or with a registered tax agent before making financial decisions.