Division 7A Loan Calculator

What Division 7A catches

The rules apply to private companies, which is what most medical practice service entities are. Where such a company lends money to a shareholder or an associate, and the loan is not repaid or put under a complying arrangement by the lodgement day for the year the loan was made, the outstanding amount is treated as a dividend.

It is not limited to cash loans. A payment made on behalf of a shareholder, and a debt forgiven rather than collected, are treated the same way. Money the company spends for the private benefit of the shareholder is caught whether or not anyone called it a loan.

What makes a loan complying

A complying Division 7A loan has four requirements. It must be in writing, it must charge interest at no less than the ATO benchmark rate for the year the loan was made, it must have a maximum term of seven years if unsecured or twenty-five years if secured over real property, and the agreement must be in place before the company's lodgement day.

Each of those is a hard requirement rather than a matter of degree. An unwritten loan between a company and its own director is not a complying loan, however clear the intention, and an interest rate a fraction below the benchmark invalidates the whole arrangement for that year.

The minimum yearly repayment

A complying loan is not enough on its own. Each year the borrower must make the minimum yearly repayment, which is the amount that would pay the loan off over its remaining term at the benchmark rate:

MYR = (opening balance × benchmark rate) ÷ (1 − (1 + benchmark rate) to the power of negative years remaining).

The practical effect is that the repayment is front-loaded. Interest is charged first and the remainder reduces the principal, so the MYR falls each year as the balance falls. A borrower who makes the same payment every year is overpaying early and underpaying later, which is a common way to fail the test in the final years.

What happens when the MYR is missed

The shortfall, not the whole loan, becomes a deemed dividend in that year. So a borrower who was required to repay $18,000 and repaid $12,000 has a $6,000 dividend, taxed at their marginal rate with no franking credits to offset it.

The company can then do one of three things with the shortfall: treat it as a dividend and let the shareholder pay the tax, put it under a fresh complying loan agreement, or have it repaid. Only the first is automatic; the other two need to happen deliberately and within the time the rules allow.

The benchmark rate is set each year

The ATO publishes the Division 7A benchmark rate annually, broadly tracking the RBA indicator rate. For 2026-27 it is 8.77%, down from 8.37% in 2025-26 and back to where it was in 2024-25.

Which year's rate applies depends on what you are calculating. The rate that governs whether a loan is complying is the one for the year the loan was made, and it is fixed for the life of that agreement. The rate that governs a minimum yearly repayment is the one for the year the repayment falls due, which is why the calculator asks for a financial year rather than a loan date.

Common traps in practice structures

Medical practices often operate through a service company or a family trust, and the company frequently ends up funding private expenses: a house deposit, a car, school fees, or a renovation. Division 7A applies to all of them, and the informality of the arrangement makes no difference.

Two traps recur. The first is the offset: a shareholder lends their own money to the company in one direction and takes money out in the other, and assumes the two net off. They do not, and the withdrawal is still caught. The second is timing: the agreement has to exist before the lodgement day, so preparing it after the accountant asks for it is too late.

What this calculator does not model

It treats the loan as running for whole years. The ATO applies the formula with a part-year adjustment in the first year, so a loan taken out partway through the year has a lower first-year MYR than this shows.

It also does not cover sub-trust arrangements, which have their own rules and their own deadlines, or the lodgement-day test for whether the agreement was in place in time. Those are the two places where a loan that looks complying on these numbers can still fail.