{"id":18843,"date":"2026-10-21T14:24:52","date_gmt":"2026-10-21T03:24:52","guid":{"rendered":"https:\/\/chuatan.com.au\/?p=18843"},"modified":"2026-10-21T14:24:52","modified_gmt":"2026-10-21T03:24:52","slug":"division-7a-loan-explained-family-company","status":"publish","type":"post","link":"https:\/\/chuatan.com.au\/en\/division-7a-loan-explained-family-company\/","title":{"rendered":"Division 7A Explained: Loans From Your Family Company"},"content":{"rendered":"
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In many family businesses the company’s money and the family’s money are not kept as far apart as the accountant would like. The company pays a child’s school fees, lends a deposit for an apartment, or covers a parent’s costs overseas. Over the years, a “loan account” quietly grows.<\/p>\n

Division 7A of the income tax law is the reason accountants worry about these amounts. It can treat money taken out of a private company by a shareholder or their family as an unfranked dividend, taxed in their hands. This article explains Division 7A in plain terms, including why it matters when a shareholder dies or the business passes to the next generation.<\/p>\n\n

What Division 7A is trying to stop<\/h2>\n

A private company pays tax at the company rate. When profits reach shareholders as dividends, the shareholders pay tax at their own rates, with a credit for company tax. Division 7A stops shareholders and their associates from getting the use of company profits tax-free through a loan, a payment or a forgiven debt instead of a taxed dividend.<\/p>\n

“Associates” is broad. It includes a shareholder’s spouse, children, parents and other relatives, as well as companies and trusts they control. A payment to an adult child overseas, or to the family trust, can therefore be caught just as much as a payment to the shareholder.<\/p>\n\n

The three main triggers<\/h2>\n

Loans<\/h3>\n

A loan from the company to a shareholder or associate is generally treated as a dividend unless, before the company’s “lodgment day” for that year, it is either fully repaid or put under a complying written loan agreement. Lodgment day is the earlier of the due date and the actual date the company lodges its tax return. Repayments that are quickly re-borrowed may be disregarded.<\/p>\n

Payments<\/h3>\n

A payment or transfer of property to a shareholder or associate, such as paying their personal bills, letting them use a company-owned car or holiday home for free, or transferring an asset for less than its value, can be treated as a dividend. In some cases a payment can be converted to a complying loan before lodgment day.<\/p>\n

Debt forgiveness<\/h3>\n

If the company forgives a debt owed by a shareholder or associate, the forgiven amount can be treated as a dividend. Writing off an old loan account in the books, or simply agreeing that “nobody needs to repay that”, can have this effect.<\/p>\n

The deemed dividend is generally capped at the company’s distributable surplus, broadly its accumulated profits, and is usually unfranked.<\/p>\n\n

Complying loan agreements<\/h2>\n

A loan that meets the Division 7A requirements is not treated as a dividend. In general terms, a complying loan must:<\/p>\n