Minimum complying-loan repayment.
Minimum yearly repayment
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First-year interest portion
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When money out of your company becomes a tax problem
Division 7A is one of the most misunderstood corners of running a private company. The rule says that if your company lends money to you as a shareholder, or to an associate like a family member or family trust, and that loan is not properly documented and repaid, the ATO can treat the whole amount as an unfranked dividend. Unfranked means no franking credits attach, so you pay tax on it at your full marginal rate with nothing to offset. A casual $100,000 drawing to cover a house deposit can turn into a $47,000 tax bill if it is left to drift.
The escape hatch is a complying loan agreement. Put the loan in writing, charge at least the ATO benchmark interest rate, and repay a minimum amount every year over a fixed term. Do that and the loan stays a loan, not a deemed dividend. This calculator works out that minimum yearly repayment, which is the number your accountant needs before each 30 June. It is built for company directors, family-business owners, and bookkeepers keeping the loan account clean.
How the minimum repayment is built
The minimum yearly repayment is a standard amortising payment: the loan is spread evenly across the term at the benchmark interest rate, so each annual instalment covers that year's interest plus a slice of principal. An unsecured loan must clear within seven years. A loan secured by a registered mortgage over real property can run for twenty-five years, which lowers each payment but stretches the interest cost over far longer.
A $100,000 loan over seven years
Using the defaults, a $100,000 unsecured loan at the 8.77 percent benchmark rate over seven years gives the figures below. The 8.77 percent shown is the tool's default; always enter the current benchmark rate the ATO publishes for the relevant income year, because it changes annually.
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So you must put at least $19,716 back into the company each year. In year one, $8,770 of that is interest income the company must declare, and the remaining $10,946 reduces the principal. As the balance falls, the interest share shrinks and more of each payment chips away at the loan. Miss the minimum in any year and that shortfall can itself become a deemed dividend.
The mistakes that catch business owners
The classic error is drawing money through the year as wages-by-another-name and only discovering at tax time that the loan account is overdrawn. By then the agreement should already have existed. The deadline that matters is the company's lodgement day for the year the loan was made: the complying agreement must be in place by then, and the first minimum repayment is due in the following income year. Backdating an agreement is not an option the ATO accepts.
A practical tip: do not pay the minimum repayment with another loan from the same company. The rules specifically ignore repayments funded by a fresh borrowing from the same source, so the money has to genuinely come from your own pocket, usually from salary or a franked dividend the company declares to you. Pairing a Division 7A repayment with a dividend in the same year is a common and clean way to service the loan.
Can I just repay the whole loan before year end instead?
Yes. If the loan is fully repaid before the company's lodgement day for the year it arose, there is no deemed dividend and no need for a complying agreement at all. Many owners with seasonal cash flow simply clear the balance by year end. The agreement and minimum repayments only matter when the loan carries over into the next year.
What happens if I pick the 25-year secured term?
The annual repayment drops sharply because the principal is spread over a much longer period, but you can only use the 25-year term if the loan is secured by a registered mortgage over real property and the loan stays within 110 percent of the property value. Without that security the seven-year term applies, regardless of what the agreement says.