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The complying-loan checklist
| Requirement | Detail |
|---|---|
| Written agreement | Signed before the company's lodgment day for the year the money was drawn, identifying the parties, amount, rate and term. A back-dated document is fraud, not a fix |
| Interest rate | At least the ATO benchmark rate, reset each 1 July. It tracks housing loan indicator rates and has sat in the high 8 percents recently, so verify the current year's rate before drafting |
| Term | 7 years or less unsecured; up to 25 years where secured by a registered mortgage over real property valued at 110% or more of the loan |
| Minimum yearly repayments | From the income year after the loan is made, a principal and interest amortisation over the remaining term at the current benchmark rate |
| Real repayments | Paid in money or by genuinely set-off franked dividends, not journal entries the cash never followed, and not repay-and-redraw loops, which are specifically ignored |
The minimum repayment maths
The minimum yearly repayment (MYR) is an amortisation formula: the loan balance annuitised over the years remaining at the current year's benchmark rate. Indicatively, on a $100,000 7-year loan at a high 8 percent benchmark, expect roughly $19,000 to $20,000 a year, recalculated annually as the rate moves.
Two things follow from that arithmetic. First, Division 7A loans are expensive to service: nearly a fifth of the balance a year, after tax, out of your pocket and back into your own company. That is why "just put it on a Division 7A loan" is a holding pattern, not a strategy. Second, the dividend set-off is the standard servicing move: the company declares a franked dividend equal to the MYR and offsets it against the repayment. No cash moves, the loan amortises, and you are taxed on the dividend with franking credits instead of on an unfranked deemed dividend. That is the whole game: converting the worst tax outcome into the normal one, on a schedule.
What missing a repayment costs
The Commissioner's honest-mistake discretion (section 109RB) and disaster-related repayment extensions exist, but like all ATO discretion they reward the taxpayer who raises the problem first.
Yearly loan hygiene
Confirm the current benchmark rate
It is republished each 1 July and changes the repayment.
Recalculate the MYR
Amortise the remaining balance over the years left in the term.
Declare or pay by 30 June
Cash repayment or a genuinely set-off franked dividend.
Minute it
Twenty minutes of paperwork that prevents a five-figure deemed dividend.
Frequently asked questions
What interest rate applies to a Div 7A loan?
How long can a Div 7A loan run?
What is the minimum yearly repayment?
Can dividends count as repayments?
What happens if I miss a minimum repayment?
General information only - not personal tax, financial or legal advice. Consider your own circumstances or speak to a registered tax agent. Remission of penalties or interest and payment plans are decisions of the ATO and outcomes can't be guaranteed.