What is Division 7A and why does it matter?
Understand what Division 7A is and how it affects payments and loans from a private company to its shareholders or associates.
Summary
Division 7A is a set of tax rules that prevent private companies from distributing profits tax-free to shareholders or their associates through payments, loans or forgiven debts. Amounts that fall within the rules may be treated as unfranked dividends.
What this means
If a private company makes a payment, loan or debt forgiveness to a shareholder or an associate of a shareholder, Division 7A may treat that amount as an assessable dividend to the recipient – unless specific requirements are met. This includes indirect arrangements through interposed entities.
Loans can be excluded from being deemed dividends if a complying loan agreement is in place before the company’s lodgement day and minimum yearly repayments are made. Division 7A is complex, and getting it wrong can lead to unexpected tax outcomes. The ATO provides a decision tool and calculator to help.
Typical actions
- Identify any payments, loans or debt forgiveness from the company to shareholders or associates.
- Consider whether interposed entities are involved.
- Put a complying loan agreement in place before the lodgement day where required.
- Track minimum yearly repayments on complying loans each year.
- Speak with a registered tax agent when Division 7A may apply.
Official ATO sources
Last checked: 25 August 2026
Loans by private companies
Explains how Division 7A treats loans from private companies.
Loans and other forms of credit
Explains what counts as a loan under Division 7A.
Division 7A calculator and decision tool
ATO tool for working out Division 7A obligations.
Division 7A myths debunked
Addresses common misconceptions about Division 7A.
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Important notice: Tax Clarity is an independent information tool. This page provides general information based on official sources. It does not provide tax, legal, financial, or accounting advice. Tax rules can change, and how they apply depends on your circumstances. For advice about your situation, speak with a registered tax agent or qualified professional.
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