Division 7A benchmark rate for 2026–27: 8.77%. Up from 8.37% last year. Applies to minimum yearly repayments due by 30 June 2027 and to new loans made this income year. Source: ATO, based on the RBA housing rate published in June 2026.

There is a particular kind of money that sits inside a successful private company. It has already been taxed at the company rate, it is technically not yours, and yet it is very easy to spend. The house deposit. The school fees. The boat. A quiet transfer from the business account, recorded at year end as a loan to the director.

Division 7A exists because the tax system knows exactly how tempting that money is. And for the 2026–27 year, the cost of borrowing it has gone up again.

The rate that sets the price

Each year the ATO publishes a benchmark interest rate that every complying Division 7A loan must charge. For 2026–27 it is 8.77%, up from 8.37% in 2025–26. It matches the level set for 2024–25, after a brief dip, and sits a long way above the 4.77% that applied in 2022–23.

The rate is not a penalty. It is designed to make a loan from your company look like a loan from a bank. But that distinction matters less than you might think, because the interest is paid to your company, and the company pays tax on it. The family is, in effect, paying itself interest and handing a slice of it to the ATO.

What Division 7A actually catches

Division 7A applies to private companies and the people around them: shareholders and their associates, which includes spouses, children, relatives and entities such as family trusts. If the company gives one of them value without paying a properly taxed dividend, the law can treat that value as an unfranked dividend instead.

It reaches further than most people expect. It covers:

• Loans, including amounts drawn from the business account and coded to a director loan
• Payments, which include paying a shareholder’s personal expenses
• Use of company assets, such as a holiday house or car owned by the company and used privately
• Debts forgiven by the company

A deemed dividend is generally unfranked, which means it is taxed in your hands at your marginal rate, up to 47% including the Medicare levy, with no credit for the tax the company already paid. The amount is capped by the company’s distributable surplus, which is cold comfort in a profitable business.

How to borrow from your company without the tax bill

The escape hatch is a complying loan. To qualify:

• The loan must be under a written agreement, in place before the company’s lodgment day for the year the loan was made. That is the earlier of the due date for the company’s return and the day it is actually lodged.
• Interest must be charged at or above the benchmark rate each year.
• The term cannot exceed 7 years for an unsecured loan, or 25 years if it is secured by a registered mortgage over real property worth at least 110% of the loan.
• The borrower must make at least the minimum yearly repayment of principal and interest by 30 June each year.

Miss the paperwork deadline and the entire loan can become a dividend. Pay less than the minimum and the shortfall can be taxed as a dividend. Neither is a rounding error.

What 8.77% does to the repayment

Take a director who drew $500,000 from their company in 2025–26 under a seven-year unsecured complying loan. The first minimum repayment falls due by 30 June 2027, with six years of the term left.

That is close to $13,000 a year more in compulsory repayments than the same loan would have needed at the 2022–23 rate, and the interest component is income in the company’s hands. For many families, the repayment is funded by declaring a dividend or paying a salary and offsetting it against the loan. That works, but it means the cash has to be extracted, and taxed, to be paid back in.

This is the part of Division 7A that rarely makes it into the conversation at the time of the drawdown. A loan that felt free in the year it was taken becomes a seven-year commitment to pull more than a fifth of the original balance out of the company every year, through the personal tax system.

Bendel, and the trust money sitting in the middle

For families with a discretionary trust and a corporate beneficiary, 2026 brought the biggest Division 7A development in more than a decade.

For years the ATO’s position was that when a trust distributed income to a company beneficiary but never paid it, that unpaid present entitlement (UPE) could itself be a loan for Division 7A purposes. On 10 June 2026, in Commissioner of Taxation v Bendel, the High Court disagreed by a 5:2 majority. A UPE, simply by being left unpaid, is not a loan.

It is tempting to read that as an all-clear. It isn’t, for three reasons.

• The facts still matter. If trust money has in fact been lent on to a shareholder or associate, other parts of Division 7A, and section 100A on reimbursement agreements, can still apply. The trust deed, the resolutions and the actual flow of cash all need checking.
• The law may change. The government is consulting on implementing a 2018–19 Budget measure that would bring UPEs within Division 7A. That is a proposal, not law, and it is being progressed separately from other trust reforms.
• Trusts themselves are under review. The government has proposed a minimum 30% tax on the taxable income of discretionary trusts from 1 July 2028, with expanded roll-over relief for three years from 1 July 2027. Treasury released exposure draft legislation on 3 September 2026. It is draft law, not yet passed by Parliament, and the detail may change.

Families who wrote sub-trust or loan agreements to deal with the old ATO view should not unwind them on the strength of a headline. Wait for the ATO’s formal response to the decision and get advice on the specific arrangement.

The bigger question

Most Division 7A problems are not tax problems. They are planning problems that surface as tax problems.

A business owner borrows from the company because their personal balance sheet hasn’t kept pace with the business. The money goes into a home or a lifestyle asset. The loan is serviced by dividends that would otherwise be building wealth outside the business. A decade later, there is a valuable company, a large director loan, and not much else.

Worth asking, before the next drawdown:

• Would it be cheaper to take the money as a franked dividend or salary now, and own the asset outright?
• Should the asset be held by the company, the trust, super or you personally, given what you plan to do with it in ten years?
• How does the loan affect a future sale, when a buyer will expect the director loan to be cleared?
• Who in your family could be an associate, and have any of them received company money without anyone noticing?

If a breach has already happened, the Commissioner has a discretion to disregard a deemed dividend, or allow it to be franked, where it arose from an honest mistake or inadvertent omission. It is a safety net, not a strategy.

This article contains general information only and does not take into account your objectives, financial situation or needs. Tax outcomes depend on your circumstances; speak with your registered tax agent before acting. Figures are illustrative and rounded. Proposals referred to are not law and may change. Current as at 13/10/2026.