Division 7A Loans and What You Need to Know in 2025

By Jaye Mankelow

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Division 7A remains one of the most closely monitored areas by the ATO. With recent updates and a higher compliance focus in 2025, it’s critical for directors and shareholders to understand how loans from private companies are treated.

Why Division 7A Matters

Division 7Ais designed to stop company profits being distributed to shareholders or associates in the form of loans, payments, or forgiven debts. If not properly structured, these can be treated as unfranked dividends, resulting in unexpected personal tax liabilities.

Key Compliance Essentials for 2025

To ensure a loan is compliant and not caught under Division 7A, you must have:

• A written loan agreement – executed before the company’s tax return is lodged.
• Correct interest rate – the ATO’s benchmark rate for 2026 announced in June 2025 is 8.37% (2025: 8.77%) (LINK)
• Term limits – up to 7 years if unsecured, or 25 years if secured against real property.
• Minimum yearly repayments – must be made by 30 June each year.

Recent ATO Focus Areas

• Integrity rules: repayments may be disregarded if replaced by new loans.
• Taxpayer Alerts: arrangements using related entities or guarantees are being scrutinised.
• Unpaid Present Entitlements  (UPEs): trust distributions left unpaid may attract Division 7A.

What Tax-Effective Opportunities are there?

When structured correctly, Division 7A loans can also be a powerful planning tool. Used for investment purposes, such as acquiring income-producing assets, they can provide a tax-effective way to access company profits, while still meeting all compliance requirements. With proper planning and documentation, these strategies can support both business growth and personal wealth creation.

Practical Tips

• Review agreements annually to update repayments and interest calculations.
• Keep clear records of agreements, repayments, and board minutes.
• Avoid “creative” structures using interposed entities without specialist advice.
• Ensure deadlines are met—missing the 30 June repayment date can be costly.

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In summary

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‍Division7A loans can be a useful tool for managing company cash flow, but strict rules apply. With the ATO’s renewed focus in 2025, compliance is more important than ever.

If you’d like to discuss how these rules apply to your company, please reach out to our team. You can also read more on our Aspira Business Insights Hub