The Fine Print Australia · PUBLISHED 25 JUN 2026 · VERIFIED 25 JUN 2026 · AU EDITION

47% Tax Hit: Division 7A Loan Deadline June 30 Trap

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A missing Division 7A loan agreement can instantly turn a private-company cash advance into an unfranked deemed dividend, with the borrower taxed at their marginal rate and no franking credits to offset it.

The number that matters

The central number is 8.27%: the ATO’s Division 7A benchmark interest rate for 2025–26, which sets the minimum interest rate for complying Division 7A loans.

How it quietly costs you

The first money leak is failing to have a written complying Division 7A loan agreement in place by the company’s lodgment day for the year the loan is made; if the loan is not fully repaid or properly documented by that deadline, Division 7A can deem the amount a dividend.

The quantified impact is that the entire outstanding loan can be treated as an unfranked deemed dividend, which is then included in the borrower’s assessable income and taxed at their marginal tax rate.

Old vs better: an informal or verbal arrangement is not enough; the better outcome is a written agreement executed by lodgment day that meets the Div 7A terms, including the benchmark rate and repayment schedule.

The second, compounding trap

The second layer is missing the 30 June minimum yearly repayment (MYR) on an otherwise complying loan, or paying too little; the shortfall can also be treated as an unfranked dividend.

The quantified cost of inaction is concrete: the ATO requires minimum yearly repayments each year, and if the required amount is not paid by 30 June, the shortfall is exposed to dividend treatment and tax at the shareholder’s marginal rate.

For top-rate taxpayers, that can mean tax of up to 47% on the deemed dividend amount, according to the industry guidance summarizing the ATO rules.

What this looks like in practice

Michael, 43, owns a small architecture firm in Sydney, earns $180K salary/dividends, has a $220K loan from his private company to himself, and is 19 years from retirement.

He would discover:

• A $220K balance that is not fully repaid or documented by lodgment day can be treated as an unfranked dividend, rather than a normal loan.
• With a benchmark rate of 8.27% for 2025–26, his yearly MYR is materially higher than many owners expect; the ATO benchmark rate is the floor for complying loans.
• If he misses the 30 June MYR, the shortfall is not a harmless accounting issue: it can be assessed as dividend income, meaning a tax hit of up to 47% for a top-rate taxpayer.

The full cost of doing nothing

For Michael, combining a missing agreement with missed MYRs can expose the full $220K to deemed-dividend treatment, with the long-run tax cost depending on his marginal rate and whether the loan is ever fixed.

Using the cited rules only, the modelling basis is:

• Loan principal: $220K
• Benchmark rate: 8.27% for 2025–26
• Tax risk: up to 47% on any deemed dividend amount for a top-rate taxpayer

What to do about it

• Check the loan’s lodgment-day status using the ATO’s private company benefits / Division 7A guidance and confirm whether a written agreement existed by the company’s lodgment day.

• Open the ATO Division 7A loans page and identify the loan date, lodgment day, and whether the loan was fully repaid or properly documented.

• Compare the actual paperwork date to the company’s lodgment day for that income year.

• Confirm whether any variation or extension could have restarted Division 7A treatment.

• Good looks like a written complying agreement in place by lodgment day, not a verbal or retrospective arrangement.

• Calculate the required minimum yearly repayment using the ATO benchmark rate for the relevant year.

• Find the current benchmark rate for the income year.

• Apply it to the opening loan balance and remaining term.

• Check whether the repayment was made by 30 June.

• Good looks like a repayment meeting or exceeding the MYR by the deadline.

• Compare the loan against the ATO’s compliance conditions: written agreement, benchmark interest, maximum term, and annual repayments.

• Review whether the term is 7 years for unsecured loans or 25 years only if properly secured over real property.

• Confirm the interest rate is at least the benchmark rate.

• Confirm repayments are not being recycled through new borrowings.

• Good looks like the loan satisfying every required condition, so no deemed dividend arises.

A myth worth clearing up

Myth: “If we sort the paperwork later, the loan can still be fixed before tax time.”

Fact: The written agreement must be in place by the company’s lodgment day for the income year the loan was made, and missing that deadline can mean the loan is treated as a deemed dividend.

Sources

• ATO

Researched 2026-06-25.

Corrections & disclosure: an AI-assisted, human-reviewed guide. Every figure is dated and sourced above. Spot something out of date or wrong? Tell us and we’ll correct it — corrections are noted here and in the video description.