Division 7A Loan Agreement
A Division 7A Loan Agreement is a document that formalises loans between a private company and an individual.
Last updated January 15, 2025
Suitable for Australia
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What is a Division 7A loan agreement?
What is a Division 7A loan agreement?
A Division 7A loan agreement is a legal document that formalises a loan between a private company and a shareholder or their associate, so the payment isn't instead treated as an unfranked dividend under the Income Tax Assessment Act 1936.
It sets out the loan amount, interest rate, term and repayment schedule needed to keep the arrangement compliant.
Who can be a borrower under a Division 7A loan agreement?
Who can be a borrower under a Division 7A loan agreement?
The borrower is typically a shareholder of the private company, or an associate of a shareholder, which can include a spouse, child, relative, or a trust in which the shareholder or associate is a beneficiary.
The definition of associate is deliberately broad, so it's worth checking whether an indirect relationship still falls within scope before assuming it doesn't.
What are the key compliance requirements for a Division 7A loan agreement?
What are the key compliance requirements for a Division 7A loan agreement?
The agreement must be in writing and signed before the private company's tax return lodgment day, charge interest at or above the benchmark rate, and have a maximum term of 7 years unsecured or 25 years if secured against real property worth at least 110% of the loan.
Minimum yearly repayments must also be made each income year.
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Frequently asked questions
What are the main risks of using a Division 7A loan agreement?
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The Legal Risk Score of a Division 7A Loan Agreement Template is High
Our legal team have marked this document as high risk considering:
- In order to be carried out effectively, a Division 7A loan requires professional-level understanding of the legal and tax implications.
- Failure to carry out the loan properly can create liability for tax evasion.
- Such an arrangement creates the risk of a conflict of interest.
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