Division 7A Rate Rises to 8.77%: Check Your Company Loan

The Division 7A rate of 8.77% now applies for the 2026-27 income year. If you have borrowed from your private company, or your accountant has recorded an amount as a company loan, this isn't a background detail. It changes the minimum repayment you need to plan for and puts your loan paperwork back in the spotlight.

The prior benchmark rate was 8.37%. The lift may look small, but a Division 7A loan isn't something to leave until return time. A missed repayment, an undocumented balance or an agreement that was never properly signed can turn a manageable company loan into a much bigger tax problem. My view is simple: treat the company like a real lender. If the loan would look weak at a bank, fix it before it becomes an ATO issue.

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Why the 8.77% Division 7A rate matters

Division 7A is designed to stop private-company profits being accessed by shareholders or their associates as tax-free private money. A payment, loan or debt forgiveness can be treated as an unfranked dividend unless an exception applies or the loan is put on complying terms.

That is why the annual benchmark rate matters. For a complying interest-bearing loan, the interest rate must be at least the relevant benchmark rate. For a company with a 30 June year end, the ATO has set the 2026-27 rate at 8.77%. The rate is based on the Reserve Bank of Australia indicator lending rate published before the income year starts. It doesn't move later because that published rate is revised.

You don't need to calculate this from scratch each month. You do need to know which loan balances are caught, whether the agreement is still in place, and whether your expected cashflow can cover the required minimum yearly repayment. Start there.

First, identify every amount that could be a company loan

Owner-directors often think of a Division 7A loan as a single transfer from the company bank account. The exposure can be wider. It may include private expenses paid by the company, funds drawn through a shareholder loan account, a balance created by personal use of company money, or an unpaid present entitlement that has been handled in a way that creates a separate issue.

Ask for the general ledger and review the shareholder or director loan account line by line. Don't rely on a rounded balance in management reports. You're looking for entries that have been posted after year end, private costs left sitting in the account, payments made on your behalf and credits that may reduce the balance.

• Separate business and private transactions. A payment isn't business spending just because the company paid it.
• Match entries to evidence. Bank statements, invoices, receipts and payroll records should support each material movement.
• Check who received the benefit. Division 7A can reach shareholders and their associates, not only directors.
• Check the date. Timing determines whether a complying agreement needed to be in place by the relevant lodgment day.

This work is unglamorous. It is also the part that prevents a late scramble. A clean loan account makes the repayment calculation and the tax return much easier to defend.

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Recalculate the minimum repayment at 8.77%

A complying Division 7A loan normally requires a minimum yearly repayment. The calculation depends on factors including the opening balance, the term of the loan, the benchmark rate and repayments already made. It isn't simply the opening balance multiplied by 8.77%.

Use the ATO calculator or have your accountant run the calculation from the signed agreement and ledger. Confirm the opening balance used is right. Then compare the calculated minimum with payments already made and any planned payment. Do this early in the income year, not in the final week of June.

The practical question is whether the borrower has a realistic path to make the payment. If the answer is no, don't paper over it with a journal entry that has no commercial basis. Consider the available options with advice: actual repayment, a properly documented change before a deadline where permitted, or a dividend and related tax consequences. Each option has different effects. There's no universal fix.

Remember that repayments need to be genuine. A repayment funded by another loan from the same private company can fail the intended outcome. Circular movement of funds is a red flag, not a plan.

Review the written loan terms, not just the numbers

A compliant outcome needs more than a ledger balance. Check that there is a written agreement and that it records the amount, term, interest rate and repayment conditions. The statutory maximum term differs depending on whether the loan is unsecured or properly secured by real property, so don't assume an old arrangement is still within its term.

For existing loans, take the agreement out of the file and compare it with the live account. Is the borrower named correctly? Does the balance reconcile? Is the stated term accurate? Have annual repayments been tracked? If security is claimed, is the supporting documentation actually in place?

For new loans, have the agreement settled before the relevant lodgment deadline rather than trying to reconstruct history later. It should read like an agreement between separate parties because that is effectively what the law requires you to demonstrate.

Build a 30 June repayment routine

The 30 June date is the practical pressure point for many companies with a standard income year. Put it in the diary well before year end and set a second reminder earlier for forecasting. Waiting until June leaves little room to correct a coding error, obtain funds or obtain advice on a non-standard situation.

1. In March or April: request the current shareholder loan account and list each Division 7A agreement.
2. In May: calculate the expected minimum yearly repayment using the 8.77% rate and check cash available to the borrower.
3. Before 30 June: make and record genuine repayments, keeping clear bank narration and supporting documents.
4. After year end: reconcile the account to bank records and send the agreement, calculation and evidence into the tax-return file.

One strong habit is to stop using the company account for private spending during the year. If private costs are paid, reimburse them promptly and clearly. It keeps the loan account from becoming a drawer full of unrelated transactions.

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Records worth keeping

Keep a copy of the signed loan agreement, the yearly repayment calculation, loan account ledger, bank statements showing repayments, security documents where relevant and board records supporting material decisions. If a loan is repaid by dividend, salary or a declared entitlement, keep the documents that show the tax treatment was actually put through.

Good records do more than help in a review. They let you see the real cashflow cost of holding a balance with the company. At 8.77%, ignoring the account is a poor use of business capital. The company has earned its money. Borrowing it privately should be deliberate, documented and short enough to manage.

What to do now

Pull the shareholder loan account today. Confirm which balances are under a written agreement. Run the 2026-27 minimum yearly repayment at 8.77%, then choose how it will be met before 30 June. If the calculation changes the cashflow plan, address it while there are options.

It's a planning task, not a box to tick after the fact. Don't wait for year end. You won't regret a regular review. It's cheaper in stress and time than trying to explain an unexplained debit balance years later.

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Sources and references

• Australian Taxation Office: Division 7A benchmark interest rate
• Australian Taxation Office: Division 7A dividends

Frequently asked questions

What is the Division 7A benchmark rate for 2026-27?

For private companies with a 30 June income year, the benchmark interest rate for the income year ended 30 June 2027 is 8.77%.

Was the Division 7A rate lower last year?

Yes. The benchmark rate for the income year ended 30 June 2026 was 8.37%.

Does 8.77% equal my whole minimum repayment?

No. The minimum yearly repayment is a separate calculation that considers the loan balance, term, benchmark rate and other relevant facts.

Can I leave private expenses in the company loan account?

Private expenses paid by the company should be identified and dealt with promptly. Leaving them unexplained can create a Division 7A issue.

When should I plan the yearly repayment?

For companies with a standard income year, plan the repayment well before 30 June and keep evidence of genuine payments.

Do I need a written company loan agreement?

A written agreement is generally needed for a loan to meet the relevant Division 7A exception. Confirm the requirements for your circumstances with a tax adviser.