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Australia Division 7A Guide

Australian Division 7A. The guide covers: the Division 7A — deemed dividends — the 'Division 7A of the ITAA 1936' is the 'anti-avoidance provision' that treats the 'loans', the 'advances', and the 'other payments' from the 'private company' to the 'shareholder' or the 'associate of the shareholder' as the 'deemed dividends' (the 'assessable dividends' for the 'shareholder') if the 'loan' or the 'advance' is NOT 'repaid' or 'covered by the complying loan agreement'; the 'deemed dividend' is the 'unfranked dividend' — the 'dividend' that is 'included in the assessable income' of the 'shareholder' at the 'marginal tax rate' (up to 47%); the 'private company' must 'withhold the PAYG' on the 'deemed dividend' (the 'PAYG withholding on the unfranked dividend'); the complying loan agreement — the 'loan' from the 'private company' to the 'shareholder' or the 'associate' can avoid the 'deemed dividend treatment' if the 'loan' is made under the 'complying loan agreement' (the 'written loan agreement') that meets the 'Division 7A requirements': (i) the 'maximum loan term' — the '7 years' for the 'secured loan' (the 'loan secured by the mortgage over the property') or the '7 years' for the 'unsecured loan' (the 'maximum 7-year term' for the 'unsecured loan') — the 'maximum 25 years' for the 'loan secured by the mortgage over the real property' (the 'mortgage loan'); (ii) the 'minimum interest rate' — the 'Division 7A benchmark interest rate' (the 'benchmark rate' published by the 'ATO' each year — for the '2025-26 year', the 'benchmark rate' is approximately 7.00%'); (iii) the 'minimum annual repayment' — the 'loan must be repaid with the minimum annual repayment' calculated using the 'Division 7A loan calculator' (the 'principal and interest' over the 'loan term'); the unpaid present entitlements (the 'UPEs') — the 'UPE' from the 'trust' (the 'discretionary trust' or the 'unit trust') to the 'private company' (the 'corporate beneficiary') may be subject to the 'Division 7A' if the 'UPE' is NOT 'paid' or 'satisfied' within the 'statutory timeframe' (the 'lodgement date of the trust return'); the 'UPE' is treated as the 'loan' from the 'private company' to the 'trust' (or the 'shareholder') for the 'Division 7A purposes'; the 'UPE' must be 'paid' or 'converted to the complying loan agreement' before the 'lodgement date' to avoid the 'deemed dividend'; the Division 7A exceptions — the 'following payments are EXCLUDED from the Division 7A': (i) the 'loan that is the 'dividend' (the 'franked dividend' or the 'unfranked dividend' that is 'declared as the dividend'), (ii) the 'loan that is the 'repayment of the loan' to the 'company', (iii) the 'loan that is the 'business transaction' (the 'arm's length loan' in the 'ordinary course of the business' — the 'credit sale' or the 'trade credit'), (iv) the 'loan that is the 'minors loan' (the 'loan to the minor child for the medical expenses'), (v) the 'loan that is less than $10,000' (the 'de minimis exception' for the 'loans below $10,000').

Deemed Dividends

  • Loan to the shareholder: The 'loan' or the 'advance' from the 'private company' to the 'shareholder' or the 'associate' is the 'deemed dividend' (the 'unfranked dividend') unless the 'exception' applies.
  • PAYG withholding: The 'private company' must 'withhold the PAYG' on the 'deemed dividend' at the 'highest marginal rate' (47%). The 'shareholder' includes the 'deemed dividend' in the 'assessable income'.
  • De minimis exception: The 'loan below $10,000' is 'excluded from the Division 7A' if the 'total loans' to the 'shareholder' are below $10,000.

For the company tax rules and the corporate tax returns, see our Corporate Tax Guide →.

Complying Loan Agreement

  • Loan term: The 'maximum 7 years' for the 'unsecured loan' and the 'maximum 25 years' for the 'loan secured by the mortgage over the real property'.
  • Benchmark interest rate: The 'minimum interest rate' is the 'Division 7A benchmark rate' — approximately 7.00% for the '2025-26 year'.
  • Minimum annual repayment: The 'minimum annual repayment' is calculated as the 'principal and interest' over the 'loan term'.

For the trust distributions and the UPEs, see our Trust & Partnership Tax Guide →.

Unpaid Present Entitlements (UPEs)

  • UPE from trust to company: The 'UPE' from the 'trust' to the 'private company' is treated as the 'loan' for the 'Division 7A purposes'.
  • Lodgement date deadline: The 'UPE' must be 'paid' or 'converted to the complying loan' before the 'lodgement date of the trust return' to avoid the 'deemed dividend'.

For the trust income and the beneficiary taxation, see our Trust & Partnership Tax Guide →.