Division 7A Loan Agreements
Complying Division 7A loan agreements for money advanced by a private company to a shareholder or associate, prepared to the terms your accountant specifies.
- Unsecured 7-year and secured 25-year loan agreements
- Registered mortgage over real property for secured loans
- Prepared to your accountant’s instructions
- Signed before the relevant lodgment deadline
Private company loans
Why the Timing Matters
When a private company lends money to a shareholder or their associate, the loan can be treated as an unfranked dividend unless it is repaid or put on complying terms in time.
To avoid a deemed dividend, the loan generally needs to be documented in a written agreement that meets the Division 7A requirements before the company’s tax return for that year is due to be lodged, or is actually lodged if that is earlier. The agreement must provide for interest at or above the benchmark rate and minimum yearly repayments over the maximum term.
The maximum term is 7 years for an unsecured loan and 25 years where the loan is secured by a registered mortgage over real property that meets the value requirement. Your accountant works out whether a loan agreement is needed and on what figures, and we prepare the agreement and, where required, the mortgage.
What we prepare
What We Prepare
Documents are prepared to the figures and terms your accountant provides.
Unsecured Loan Agreement
A complying agreement for a maximum 7-year term, with benchmark interest and minimum yearly repayments.
Secured Loan Agreement
A complying agreement for a term of up to 25 years, secured over real property.
Registered Mortgage
A mortgage over the borrower’s property, prepared and registered to secure the 25-year loan.
Amalgamated Loans
Agreements that bring several loans made in the same year together on complying terms, where your accountant recommends it.
Timing and Execution
Documents prepared and signed ahead of the relevant lodgment deadline, with signing arranged for each party.
Records for Your Accountant
Signed copies delivered in a form your accountant can place on file for the company’s tax records.
Fixed fees for this work are published on our pricing page.
Get a Fixed-Fee QuoteHow it works
How It Works
Instructions from your accountant
The lender, borrower, loan amount, term and whether the loan is to be secured.
We confirm the fee
A fixed fee in writing before work starts, with the mortgage priced separately where it is needed.
We prepare the documents
The agreement, and any mortgage, are prepared and sent for signing.
Signing and registration
The agreement is signed before the deadline, and any mortgage is lodged for registration.
Before you start
What We Need From Your Accountant
Division 7A agreements are prepared to figures your accountant settles. Having their instructions in writing lets us prepare the documents quickly and within the deadline.
The parties: The lending company and the borrower, whether a shareholder, a relative, a related trust or another associate.
The loan: The amount, the income year in which it was made, and whether it combines several amounts into a single loan.
Term and security: Whether the loan is unsecured over up to 7 years, or secured over up to 25 years, and if so the property to be mortgaged.
The deadline: The date the company’s tax return for the year is due to be lodged, so that the agreement is signed in time.
Common Mistakes
Leaving it until the return is lodged: Once the lodgment date has passed, it is generally too late to put the loan on complying terms for that year.
Using an outdated template: Templates that do not reflect current requirements can fail to meet them, with the same result as having no agreement.
Missing minimum repayments: A compliant agreement still requires the minimum yearly repayment to be made. A shortfall can be treated as a dividend.
Mortgage not registered: A 25-year term relies on the loan being secured by a registered mortgage over real property. An unregistered mortgage does not meet that requirement.
Points Worth Knowing
The deadline is fixed
The agreement generally must be in place before the company’s return for the year is due or lodged, whichever is earlier.
Benchmark interest
Interest must be charged at least at the benchmark rate the ATO publishes for each income year.
Minimum repayments
A minimum yearly repayment must be made, or the shortfall may be treated as a dividend.
Security for longer terms
A 25-year term requires a registered mortgage over real property that meets the value requirement.
Trust entitlements
Amounts owed to a company by a related trust may also need to be dealt with under Division 7A.
In writing and signed
The agreement must be in writing and signed by both parties, so signing needs to be arranged in time.
We prepare the documents. Whether a loan falls within Division 7A, and the figures used, are matters for your accountant.
Talk to Us About Your MatterOther related-party loans, such as loans from family members or between entities, are covered on our loans and security page.
Division 7A FAQs
What happens if the agreement is not signed in time?
Can an existing loan be put on complying terms?
What interest rate applies?
What does a Division 7A loan agreement cost?
Do you advise on whether Division 7A applies?
Can one agreement cover loans made in different years?
Who needs to sign the agreement?
Have a question that is not answered here?
Contact UsNeed a Division 7A Loan Agreement?
Send us your accountant’s instructions and we will confirm a fixed fee before any work starts.
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