Borrowing Money from Your Company? Read This First

If you borrow money from your private company or regularly take money out without recording it as wages or dividends, it’s important to understand the Division 7A rules.

Division 7A is designed to stop company profits being accessed tax-free. If the ATO considers your loan doesn’t meet the rules, the amount borrowed could become taxable,
resulting in an unexpected tax bill.

To avoid this outcome, a Division 7A loan generally must:

• Be supported by a complying written loan agreement.
• Be repaid over the maximum permitted term (generally 7 years for an unsecured loan).
• Meet the minimum yearly repayment each year.
• Be charged interest at least equal to the ATO’s benchmark interest rate.

For the 2026–27 income year, the ATO’s benchmark interest rate is 8.77%. That’s a significant rate, so borrowing from your company is no longer the cheap source of finance many business owners assume it to be.

As we begin the new financial year, now is the ideal time to review any loans between you and your company to ensure repayments are on track and the required documentation is in place.

If you’re unsure whether you have a Division 7A loan, or whether your current arrangements comply with the rules, please contact our office. A quick review now could save you from an unexpected tax bill later.

Author

Naomi Aspromourgos