Division 7A loans can create tax problems for private companies.

The risk often starts with simple things. A director takes drawings. A company pays a private bill. A trust owes money to a company. A related-party balance sits unpaid.

For private company groups, Division 7A loans should be reviewed before year end. This helps make repayments, records, and related-party balances clear.

These issues can be easy to miss during the year. However, they can become serious before 30 June.

The ATO says Division 7A can apply when a private company gives value to a shareholder or their associate. That value may be a loan, payment, forgiven debt, or other benefit. If the rules are not managed, the ATO may treat the amount as an unfranked deemed dividend.

You can read the ATO’s overview of private company benefits and Division 7A dividends.

Here are seven costly mistakes to check before year end.

Why Division 7A loans matter before 30 June

Timing matters.

Some repayments need action by 30 June. Private payments also need review before the accounts are finalised.

Trusts can add more risk. So can related-party balances.

Because of this, private company groups should check the full picture. A quick review now can prevent a bigger tax issue later.

1. Missing repayments on Division 7A loans

Minimum repayments are easy to leave too late.

The ATO has reminded private companies to use the correct benchmark interest rate. Companies also need to make minimum yearly repayments by 30 June.

For the 2025-26 income year, the benchmark interest rate is 8.37%.

Before 30 June, check:

• each loan balance
• the benchmark interest rate
• the minimum repayment
• the payment date
• the records for the payment

Journal entries need care. They should match a real payment. They may also need to match a dividend, offset, or other recorded step.

You can check the ATO’s reminder on making Division 7A loan payments count. You can also check the current Division 7A benchmark interest rate.

2. Using company money privately

Company money is not personal cash.

Problems can arise when a company pays private costs. This includes costs for a shareholder or associate.

The director may plan to fix it later. Even so, the payment can still create risk.

Examples include:

• school fees
• personal credit cards
• home loan payments
• private travel
• personal vehicle costs
• drawings in a loan account

If the company paid private costs, review the account before year end.

The shareholder may need to repay the amount. In other cases, the company may need a complying loan.

These private payments can quickly become Division 7A loans if the company does not record and manage them correctly.

For broader support, see the HarvestWise services page.

3. Forgetting associates

Division 7A does not stop with direct shareholders.

The rules can also apply to shareholder associates. Because of this, do not only check the director’s loan account.

Also check:

• spouses
• family members
• family trusts
• related companies
• connected entities

Private groups often move money between several entities.

One transaction may look harmless on its own. However, the wider group picture may show a tax risk.

4. Old agreements for Division 7A loans

Old loan agreements can cause trouble.

A complying loan usually needs written terms. It also needs the correct interest rate. The loan term must fit the rules.

Check:

• the agreement exists
• the dates make sense
• the interest rate is correct
• the term fits the loan type
• repayments match the required amount

Timing also needs care.

Minimum repayments usually matter before 30 June. However, written loan agreement deadlines can depend on the company’s tax return lodgement date.

So, do not treat every task as having the same deadline.

The ATO’s Division 7A loans guidance explains the main rules.

5. Ignoring private company asset use

Division 7A risk does not only come from cash.

A shareholder may use a company asset for private reasons. An associate may do the same.

For example, a company-owned asset may be used at home. A vehicle may also have private use.

The tax treatment depends on the facts. Fringe benefits tax may also need review.

Before 30 June, ask:

• who used the asset
• how often private use happened
• whether records exist
• whether any payment was made
• which tax rules apply

This check can stop a small asset issue from becoming a bigger tax problem.

6. UPEs and Division 7A loans

Trusts need special care.

This is especially true when a corporate beneficiary is involved.

On 10 June 2026, the High Court handed down its decision in Commissioner of Taxation v Bendel [2026] HCA 18. The case looked at unpaid present entitlements. These are often called UPEs.

The decision matters for private groups with trusts. However, it does not make every trust arrangement safe.

A UPE may not create a loan just because it remains unpaid. Even so, other tax rules may still matter.

Trust law may also need review. So may account records, trust documents, and anti-avoidance rules.

The ATO’s response may affect the practical treatment. Therefore, get advice before relying on this point.

You can read the High Court page for Commissioner of Taxation v Bendel.

7. Waiting until after year end

Problems get harder after 30 June.

By then, the repayment date may have passed. Records may also look thin. In some cases, fewer options may remain.

Before year end, review:

• shareholder loan accounts
• associate loan accounts
• private expenses paid by the company
• old loan agreements
• minimum repayments
• trust distributions
• UPEs
• related-party balances
• dividends or offsets used to clear amounts

This review does not need to be complex. It needs to be timely, clear, and backed by records.

A year-end review helps confirm whether Division 7A loans have been repaid, documented, or handled under the correct tax treatment.

How to check Division 7A loans before 30 June

Start with the balance sheet.

Then review amounts linked to shareholders, directors, family members, trusts, and related entities.

Next, check the treatment for each amount.

Some amounts may need repayment. Others may need documents, a dividend, an offset, or a complying loan.

Also confirm that any minimum repayment has been made by 30 June.

If you use a dividend or offset, document it clearly.

The ATO’s Division 7A calculator and decision tool can help with repayment calculations. However, complex private groups still need tailored advice.

When to ask HarvestWise

Ask your accountant before 30 June if your company has:

• shareholder drawings
• loans to directors
• loans to family members
• unpaid trust distributions
• private expenses in the company account
• old loan agreements
• unclear repayment calculations
• balances across related entities

Division 7A loans are easier to manage when you review them early.

Small mistakes can become expensive. In some cases, they can create unfranked deemed dividends.

If Division 7A loans appear in your company accounts, it is better to check them before 30 June than fix problems after year end.

HarvestWise Accounting can help review your company accounts, loan agreements, trust arrangements, and year-end records.

If your company has shareholder loans, trust arrangements, or private group balances to review, contact HarvestWise Accounting before 30 June.