As a business owner, it’s easy to assume that money sitting in your company bank account is yours to use. But taking money out of your company isn’t always straightforward and getting it wrong can have costly tax consequences.

Division 7A is an area that often catches business owners by surprise, particularly when personal expenses, director’s loans or family transactions are involved.

Here’s what you need to know, the common mistakes to avoid and how to manage company withdrawals correctly.

At a glance

Using company money for personal expenses can trigger Division 7A.
If the rules aren’t followed, you could face an unexpected personal tax bill.
Company loans need to be properly documented, with interest charged and repayments made on time.
Reviewing company withdrawals and director’s loan accounts throughout the year can help avoid costly mistakes.

What is Division 7A and who does it apply to?

Division 7A is a tax rule that prevents private company profits from being accessed tax-free through certain payments, loans or forgiven debts.

Even if you own the company, its money is separate from your personal finances. Taking money out without properly recording or managing the transaction can result in unexpected tax consequences.

Division 7A generally applies to transactions involving company shareholders and people or entities connected to them, including family members and related trusts.

Importantly, calling a withdrawal a “loan” or “drawings” doesn’t automatically mean it will be treated that way for tax purposes.

When does Division 7A apply?

Division 7A issues often arise from everyday transactions that business owners may not realise have tax implications. Here are three common situations to watch for.

Payments

You transfer company funds to yourself or a family member, pay a personal bill such as school fees or renovations from the company account, or use a company asset privately.

Loans

The company lends money to you or someone connected to you. This can include an overdrawn director’s loan account, even without a formal agreement.

Forgiven debts

The company agrees that you no longer need to repay a debt you owe it.

When does Division 7A not apply?

Not every payment from your company will trigger Division 7A. Some transactions are treated differently for tax purposes, including:

salary and wages paid to you as an employee (subject to PAYG withholding)
dividends that are properly declared and paid
certain amounts repaid before the relevant company tax return deadline

Not sure how a payment has been recorded? Ask your accountant to check your director’s loan account before year end.

What happens if you breach Division 7A?

If Division 7A isn’t managed correctly, the ATO may treat the amount withdrawn as a dividend, even if you intended to repay the money.

This can result in an unexpected personal tax bill, potentially without the benefit of franking credits for tax already paid by the company.

There are rules that may limit the amount taxed, but these can be complex and should be reviewed with your accountant.

How a Division 7A loan works:

You can borrow money from your company, but there are rules you need to follow to avoid unexpected tax consequences.

A complying Division 7A loan allows you to repay the money over time, provided the loan is properly documented, interest is charged and minimum annual repayments are made.

Division 7A loan requirements

Generally, you need:

A written agreement by the applicable company tax return lodgement deadline
Interest charged at no less than the ATO benchmark rate
A loan term of up to seven years, or potentially 25 years for a qualifying loan secured over property
Minimum yearly repayments made by 30 June, starting in the following income year

Division 7A interest rates

For 2026–27, the draft uses an ATO benchmark interest rate of 8.77% (8.37% for 2025–26). This rate changes each year.

The company also pays tax on the interest it receives. This should be considered when planning repayments.

Division 7A loan repayment example

For example, if your company lends you $100,000 over seven years, the first minimum yearly repayment could be about $19,700 using an 8.77% rate.

The amount can change each year because the interest rate and remaining loan balance change.

Common Division 7A mistakes we see

Division 7A issues often arise from simple mistakes rather than deliberate decisions. Some of the most common issues we see include:

Using the company account for personal bills. Record and review these payments rather than treating the account as your own.
Missing the agreement deadline. A late loan agreement may not fix an earlier withdrawal.
Missing a yearly repayment. Keep the due date in your calendar and check the amount with your accountant.
Repaying and immediately borrowing again. Some arrangements may not count as genuine repayments.
Using company assets privately. Personal use of company property can also create tax issues.

Commonly Asked Questions

Can I borrow money from my own company?

Yes, you can borrow money from your company, provided the arrangement complies with Division 7A rules. This generally means having a written loan agreement, charging the required interest and making minimum annual repayments. Without these requirements, the loan may be treated as a taxable dividend

Can Division 7A affect family trusts?

Yes. If your business operates through a company and family trust, certain trust distributions and unpaid amounts may also have tax implications.

These arrangements can be complex, so it’s important to have them reviewed as part of your overall tax planning.

What happens if I’ve made a Division 7A mistake?

If you’ve taken money out of your company without properly documenting it, there may still be options available. Depending on your circumstances, you may be able to repay the money, put a complying loan agreement in place or seek relief from the ATO for an eligible mistake.

The key is to act early. Speak with your accountant to understand your options and address any issues before they result in unexpected tax consequences.

Need help with Division 7A?

Unsure whether your company withdrawals or director’s loan account could create a tax issue?

At Falanga & Co, we help business owners understand their Division 7A obligations, review outstanding loans and plan ahead to avoid unexpected tax consequences.

Speak with our business tax accountants to ensure your company withdrawals are managed correctly.

Division 7A explained: Taking money out of your company